Auto Buying Guide: Figuring Out Finances

by Aryn Plax

Jun 1, 2021

Previously, we wrote advice on choosing a car model. However, one thing that will determine your search is your budget. How much can you pay for your car overall? When figuring out your budget, you shouldn’t just take into account the sticker price. You should also account for items such as sales tax, title and registration fees, warranties and operational costs such as fuel and regular maintenance.

Some people pay for the vehicle up front. However, if you plan to finance the vehicle, research the options provided by a credit union or a bank. Getting a pre-approved offer can help you. Dealership’s financing offices want to make money out of whatever financing plans they offer you. By having a competing offer at your disposal, you give yourself a certain amount of negotiating leverage.

If you are buying a new car, you should learn these terms:

• Manufacturer’s suggested retail price (MSRP): This is the price that the manufacturer suggests the dealer should sell the car for. The MSRP will appear on the new car’s window sticker.

• Invoice Price: This is the price the dealership pays the manufacturer for a new car. The discrepancy between the MSRP and the invoice price is the dealer’s profit margin.

• Dealer Cost: This is the invoice price the dealer pays to the manufacturer, minus any fees that the dealers get after the vehicle is sold to recoup some costs.

Contact different dealerships to get price quotes on your desired car. Get quotes on base prices via phone or email. If you are given a price over email, print the email. Having documented offers will only help you in your negotiations.

If you’re buying a used car, research that model’s resale prices. If you’re trading in your current car, you should have the value of your car appraised. That way, you’ll know whether the salesperson at the dealership is lowballing you on your trade-in.

If you have outstanding payments on your current car, reconsider your budget. Current debts can affect how much you can afford for a new car.

Of course, when accounting for costs, keep in mind your insurance plan. Some models are more expensive to insure, and dealers often require proof of insurance before you take the vehicle home. Learn more about insurance in our next post of our Auto Buying Guide series.