Money Matters for Students

You have an older model. It's finally paid for. Those new models tempt you - but, it's nice to not have to make another payment! How do you decide whether it's smarter to keep your old vehicle or go for a new one? What are the pros and cons and how do the costs compare?

When it comes to an older vehicle, the cost of owning it seems to decrease with age. That's because its value has depreciated and a lot of expenses, such as insurance, registration fees and property taxes in some states are pegged to its value.

On the other hand, maintenance and operating costs rise as a vehicle ages. Even if your older vehicle is running well, normal wear and tear still takes its toll on tires, batteries, belts and hoses, and many other parts. As they wear out, they need to be replaced.

Buying a new vehicle is tempting - not just because it looks good and smells good, but because maintenance costs are minimal. Especially with the improved quality of new models coming off the assembly lines these days. In fact, you can expect at least 3 years or more without any major repairs.

Based on your particular situation, deciding on whether to buy a new car, truck or minivan may take careful analysis and some hard thinking. Even though we all like to think we're financially smart, making the right decision can be difficult, especially when an older vehicle is running well.

It can be even more difficult to make a decision when you've just spent a lot of money for repairs. That's when you really need to be objective! What's important is not the money you've already spent (because you won't get it back). . . but how much it will cost you in the future to maintain the vehicle. So if you think you'll be seeing a steady increase in the costs of repairs ahead, you may want to consider trading in your older vehicle now.

It may not be as difficult for you to make a decision if your vehicle has a high resale value. That's because you can think of it as your down payment. And models with high resale values give you more to put down on a new vehicle. So it may be worth your while to consider trading-in a vehicle that still has a high resale value.

When making a decision, you'll need to weigh your financial situation against the cost of owning a new model against the anticipated maintenance costs of an older vehicle. But regardless of the outcome, don't be surprised if your passion for owning a new vehicle overrides the numbers.

Do it before you visit a dealer showroom and it will help take the anxiety and uncertainty out of being approved for the amount you need. And with pre-approval, there's absolutely no obligation to buy a vehicle or take the loan.

Consider The Advantages Of Being Pre-Approved By A Bank Near You:

First, you'll be able to walk into a dealer showroom as a "cash customer" which strengthens your bargaining position.

Second, dealers will recognize you as a "serious car buyer": and be more likely to meet your bottom-line figure.

Third, by not lumping the cost of the vehicle and financing together, you'll know exactly what you're paying for.

And finally, since the dealer does not have to take the time to go through the credit approval process, you should be able to drive away in your new vehicle much quicker.

Most important, when it comes to negotiating the price for your new vehicle, don't be the first to suggest what you're willing to pay. You're in a much better negotiating position if you know where the dealer is starting from. Just select the vehicle you want and pose this question to the salesman: "I'd like to buy this new vehicle... how much do you want for it with my present vehicle as a trade-in?" Most salesmen will come back and ask you how much you want to spend. Whatever you do, don't offer a figure. Be firm and persistent in getting your question answered first. There's really nothing to talk about until the salesman makes his first offer. The rest is up to you.

Here Are Some Other Negotiating Tips:

Tip #1: Know what you want. The easiest way for a salesman to boost profit is to sell you more car than you need.

Tip #2: Do you homework. Compare models and extras. Research the vehicle you want. Know the sticker price and the dealer cost (factory invoice) of the vehicle you want.

Tip #3: Set limits to what you're willing to pay. Naturally, dealers have to make a profit, or they would be out of business. Your job is to determine what that fair profit is - usually a few hundred over "factory" invoice cost.

Tip #4: Understand what "dealer invoice" really means and don't be confuse by the terminology. "Dealer invoice" "dealer cost" and "sticker price" are not the same as "factory invoice" which is the actual price the dealer paid for the vehicle. There are books, such as the AAA Car Buyers Handbook, that can help you determine this amount. Your final negotiated price (with no trade-in) should be a few hundred dollars over that amount.

Tip #5: Be ready to walk away from a dealership if the deal offered does not meet your expectations. There are a lot of vehicles just like the one you like at other dealerships.

Tip #6: Buy at the end of the month. Dealers have quotas for the number of vehicles they must sell each month. If a dealership is short on the quota, there may be more flexibility.

Tip #7: Avoid shopping on weekends or in the evening. These are heavy traffic times. There's already a lot of sales activity going on and dealers may not be as motivated to meet your price.

Tip #8: Look for the sticker showing the month the vehicle was manufactured. If it was built more than 4 months ago, it's a slow mover and you should be able to negotiate a better price for it.

Tip #9: Be willing to settle for a model that isn't "hot". Hot, in-demand models are sold closer to full price. Dealers are willing to reduce the price more for slow movers.

Tip #10: Be willing to wait to get the vehicle you really want. You can sometimes get a better price if you order the model with just the options you want from the factory.

Tip #11: If you sell your old vehicle yourself, you can usually get about 30% more than the wholesale value assessed by the dealer.

Tip #12: If you trade in your vehicle, know your pay-off amount. You can easily call the lender for this information. It should be less than the total of your remaining payments since your payments include interest- and you don't pay interest once the vehicle is paid off.

Tip #13: You'll have more buying power if you walk into a dealership with your financing pre-arranged. You may also be able to get a lower interest rate on your loan if you shop ahead.

Tip #14: Don't sign anything that binds you to buy a new vehicle until you have the financing guaranteed. You don't want to be stuck with a vehicle you can't pay for.

You'll have more "buying power" when you walk into a dealer showroom with a pre-approved bank loan. Chances are, you'll also get a "lower interest rate" with bank financing, especially since you're planning to negotiate hard with for your new vehicle. (In fact, dealers may sometimes lower the price for a new vehicle, because they expect to make up the difference on financing with a higher interest rate.)

Tips For Saving On Financing

Tip 1: Keep vehicle price negotiations and financing separate.

Tip 2: Get pre-approval on a bank loan with a guaranteed interest rate if you buy within a specific time period.

Tip 3: Take the shortest term you can handle financially. And remember that the longer the term, the greater the cost of the loan. You'll end up paying more for your new vehicle in the end.
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Tip 4: Maintain a good credit and make your car payments on time. With a good credit history, you may be able to take advantage of lower financing rates.