NEW YORK — Despite the poor economy, buying a car might be an expense recent college grads can’t skip over.
Here are some tips to help navigate the perils of car shopping.
Check credit. For someone fresh out of college, buying an affordable car that is paid off on time is an excellent way to build credit. That will help down the road with buying a house, a more expensive car, starting a business or anything else that requires borrowing.
Before setting out for the dealership, it’s a good idea for a buyer to check their credit history. This gives a car buyer the same information lenders use when they decide whether to give a car loan. Each of the three credit agencies, Experian, TransUnion and Equifax, allows one free credit report per year through their websites.
Set a budget. First-time car buyers will want to come up with a firm budget before setting foot in a dealership, where sales staff are likely to try to sell unnecessary add-ons and options.
A good benchmark: Young car owners should plan to spend no more than 15 percent of their monthly income for car payments, says Greg McBride, senior financial analyst at Bankrate.com. Of course, the less they spend, the more they can stash in savings.
Several websites feature calculators that allow buyers to plug in a car’s price, down payment and interest rate and compute a monthly payment. Start with Cars.com or Autofinancing101.org.
Buy, don’t lease. For recent grads, buying is the way to go in most cases.
Buying allows them to put equity into something they’ll eventually own, and most cars built today are of high enough quality to last well beyond the life of a loan.
Leasing can be dicey for recent grads because, while the monthly payments may be cheaper, most arrangements charge a fee for breaking the lease early. For young people facing a difficult job market, that’s not an appealing prospect, says Patrick Olsen, editor in chief of Cars.com
Olsen suggests buying a dependable, late-model used car. The payments will be smaller than something new and someone else will have taken the initial depreciation cost.
Shop around. Recent grads should shop around not just for the car they like, but for the financing plan they’ll use to pay for it.
Karl Brauer, editor in chief of the automotive website Edmunds.com, suggests going to a bank or credit union first. The shopper should explain which car they’re looking to buy and get an offer for a loan. They should take that offer to several dealerships and negotiate.
“If you can have multiple dealers that you’re talking to and get them to play off each other, that could be a real benefit,” Brauer says.
First-time buyers who find the haggling process intimidating can do the bulk of their shopping online. Most dealership websites allow shoppers to correspond with sales staff via e-mail.
In addition, keep an eye out for incentives aimed at college grads, most of which are good for up to two years after graduation.
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