When buying a new car, many buyers only consider Equated monthly instalment payments and features of a new car. Potential financial costs must never be overlooked unless you want to feel your budget under stress. Here are some financial mistakes to avoid when upgrading to a new car.
Lack of awareness about Loans
Many people rely on loans when buying a new car. A detailed comparative study is required here before choosing a loan. Buyers with better credit scores are more likely to get loans at lower interest rates. If the score is low then the loan application should only be made only after considering ways to improve it.
Compare interest rates from various lending institutions before opting for the loan offered by your car dealership. Also look at the fine print of the loan document to find hidden costs like processing fees, foreclosure charges and late payment fees if any. The total cost of your loan payment, shouldn’t be more than 20 per cent of your take-home pay.
Resale Value, Mileage & EVs
While buying a new car, factors like its features and mileage should be given due importance. As technology and car models are undergoing rapid change, the resale value of the car is the most important factor to consider. Research popular models with high resale value before fixating on your favourite model. Buying an EV can be considered if you are a person who has to drive over 50 km every day. Know that the more you drive you can set off the additional cost you have incurred on purchasing an EV but be aware that the charging infrastructure is still in its growth phase.
Downpayment Is Key
Be careful not to overspend in the excitement of buying a new model car. Do not neglect the power of down payments in reducing the overall cost of a loan. Another mistake is to consider only EMI while taking a loan without looking at other factors.
A higher down payment reduces the loan repayment instalments or results in lower monthly payments and less interest paid over the loan tenure. Otherwise, the net price of the vehicle will be too high and you end up striking a bad deal.
Maintenance & Other Cost
There are different types of costs to consider when upgrading to a new car apart from the purchase price. Insurance costs, registration fees, taxes, maintenance costs, fuel costs etc. should all be compatible with your budget. Further, anticipate for these costs to increase over the years. For instance, diesel cars can help you save money in fuel costs, but they typically cost more than petrol cars in maintenance. Research and square off different expenses to choose the right car. Future maintenance, repairs and fuel costs can make a lot of difference to your budget if you buy the right car.
Visit Multiple Dealerships & Testdrive
Never walk into a dealership without researching the model of the car you are planning to buy. Cars are often sold through dealers. Always visit multiple different dealerships in your area and as you have already owned a car, experts always visit to at least test-drive four favourite alternate models before choosing one. Try to spend at least half an hour on the test drive on different road surfaces before feeling sure about owning that car.
Dealerships offer car financing options typically at a higher rate of interest than you may find if you compare offers from banks. Never disclose your plans of trading in your old car for a new one before you have settled at a first-round- negotiated price. Do not disclose your intention of doing it till the end of the buying process. Last but not least, don't buy unnecessary extras such as rustproofing, fabric protection, dealership maintenance plans, etc.
