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A Short Guide to Buying a Car in 2022

The price of everything has gone up this year and cars are no exception. Whether you are in the market for a used or new car, you can expect to see higher prices. Slowdowns due to the pandemic and a global chip shortage have made the car market tight. According to the U.S. Bureau of Labor Statistics, its used car index, which tracks used car prices, has risen by 42% from December 2019 to October 2022. Many experts have suggested that car prices could start to drop in early 2023. However, that’s not a guarantee. If you can’t defer your purchase, here are a few tips to keep in mind as you go car shopping:

  1. Do your research before you go to the dealership. It’s a good idea to have a car and price range in mind before going to the dealership. That way, if the salesman offers you a deal, you can decide whether or not it is, in fact, a deal. If you go to purchase a car and you have no idea what you want, you will be tempted to go outside of your budget. Decide ahead of time what type of car you want and what you are willing to pay.
  1. Get pre-approved financing. Many people aren’t aware that when you decide to get a loan from the dealership, they can add additional interest charges on to your loan. This is called a finance reserve. So, if you were approved for an interest rate of 5%, the dealership can add an additional 2% to the loan before presenting it to you. This will cost you more over the length of the loan.

Pro- tip: Get pre-approved by rate shopping with a few lenders. Then, have the dealership match or beat those rates. Keep in mind that if you are applying for credit, it does affect your credit score! So, make sure you shop around within a 7-day window.

  1. Look at more than just the monthly payment. Most salesman are going to try to sell you the car based on the monthly payment. They will ask you what your monthly budget is and go from there. This isn’t always good because a lower monthly payment doesn’t always mean a lower cost car OR even a good deal.

For example, a dealer may charge a higher interest rate than what you qualify for and extend the payment time frame from 60 months (5 years) to 72 months (6 years). By pushing the repayment terms out further, it lowers the payment, but raises the total cost of the car.

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  1. Question the add-ons. Sometimes dealerships may offer add-ons like pre-paid maintenance, paint protection or fabric protection. In most cases, you don’t really need these. You may consider extended warranties and GAP insurance if you plan to keep your car for a while. GAP (Guaranteed Asset Protection) insurance is helpful because it will cover the difference between what you owe on your car and what is worth in the event that the car is stolen or totaled. With car prices as high as they are, that extra protection with GAP insurance could come in handy.

Not all dealers are bad and out to get you. They need to make money just like any other business. However, it is important to be knowledgeable about what you will be paying so that you are in the position to get the best deal for yourself.

For more tips and resources from our expert money coach, join the Snowball Community on our iOS app or on the web.

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