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Auto Loan Basics

Woman looking at new and used cars
Woman looking at new and used cars

The basics of buying a new 
or used car

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You’ve decided that buying a car is going to be your next major purchase — but how do you make sure you’re getting the best vehicle and the best deal?

Consider these 5 topics when thinking about buying a new or used car.

1. Budgeting

When it comes to auto loan basics, it’s best to put first things first: Figure out how much you can afford to spend. A tool like Bank of America’s monthly car payment calculator can help you understand how much car you can afford.

If you have a vehicle to trade in, you’ll want to know its market value so you can factor that into your budgeting. Sites like J.D. Power popup and Kelley Blue Book popup are good places to start for determining the value of a used car. It's also a good idea to visit a few dealerships and ask for a quote on your vehicle's trade-in value.

As you focus on that monthly budget number, be sure to include the costs of gas, insurance and upkeep.

2. Is buying a new car appropriate for you?

If you’re thinking about buying a new car, here are some specific steps you can follow to help you get the very best deal:

  1. Determine the base price. This is the price of the vehicle without any special options. You can get a good idea of the base price by visiting several dealerships and websites and comparing prices.
  2. Add in the cost of optional features or packages. You may feel, for example, that buying a new car also means getting the latest and greatest sound system. Be sure to add the price of any extras you want to the base price of the car.
  3. Know how much the dealer will add on for various options. Features like antilock brakes and a security alarm can save you money on insurance costs, but they’ll cost money up front. Look at the price stickers for cars at various dealers to know how much these features typically cost.

Once you know these numbers, you’ll be in a better position to negotiate with the dealer.

3. Is buying a used car appropriate for you?

For most people, buying a used car is a better choice than buying a new car. The first owner of the vehicle has absorbed the biggest portion of the vehicle’s depreciation (the decrease in value), so you’ll tend to get more value for your money. But there’s more to consider than just depreciation:

Positives of buying a used car include:

  • Lower purchase price
  • Lower depreciation
  • Lower registration and license fees (which are usually tied to the value of the vehicle)
  • Potential for lower insurance premiums

Negatives of buying a used car include:

  • Reduced or no manufacturers' warranty
  • Potential for higher interest rate on your auto loan or lease
  • Potential for reduced reliability
  • Potentially higher maintenance costs such as replacing tires, battery and brakes

If you decide that buying a used car is the way to go, be sure to check the mileage carefully and make sure the car is in good mechanical condition. You can also run an AutoCheck popup or CARFAX popup report to get more information on the vehicle’s history, including whether it’s been in any accidents.

4. Vehicle research

Visiting dealerships and going on test drives is an important part of buying a car, but it’s also a good idea to read as many reviews as you can find. You’ll want to know, for example, if the car you’re thinking of buying has been given high marks for safety and if it’s reliable in terms of needing repairs.

Some good places to start looking for both professional and consumer car reviews are:

5. Buying a used car from a dealer vs. a private individual

The Federal Trade Commission's Used Car Rule popup requires dealers to post a Buyers Guide in every used car they offer for sale. This Guide provides a great deal of information, including, but not limited to:

  • Whether the vehicle is being sold as is or with a warranty
  • The terms and conditions of any warranty being offered
  • The percentage of repair costs a dealer will pay under the warranty
  • The vehicle systems (for example, mechanical and electrical) covered by the warranty

When you buy a used car from a private individual, the Used Car Rule doesn’t apply. Typically, any implied warranties of state law don’t apply, either. A private sale is generally an “as is” transaction—you'll have to pay for anything that goes wrong after you take possession of the car. Bank of America does not finance the purchase of a car from a private individual.

You can take much of the worry out of buying a used car by purchasing your vehicle through a member of Bank of America's dealer network.

A final thought

Whether you’re buying a new or used car from a dealer or from an individual, be sure to:

  • Examine the car using an inspection checklist (you can find checklists in magazines, books and websites that deal with used cars)
  • Test drive the car under various road conditions such as hills, highways and stop-and-go-traffic
  • Ask for the car's maintenance record from the owner, dealer or repair shop
  • Hire a mechanic to inspect the car
  • Check the vehicle's history with AutoCheck popup or CARFAX popup

Good luck on your auto shopping—and enjoy your new wheels!

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