Planning on saving for a new car? Use this guide to help you buy a new car / used car.

Cars are more complicated now that they have ever been. Other than paying for the car, you will have to consider the extra costs of maintaining the car as well. If you already own a car and want to buy or trade it for a new one, it’s best that you try to sell it yourself. You can often get more money for your car if you do a private sale. This is not a complicated process, and you can use the money to pay off your current loan.

But if you are new to this, then the best option is to purchase a used car that is two to three years old. Why, you ask? You do not want to buy a brand new car if this is your first time purchasing a car. Let me explain why. Immediate depreciation. Immediate depreciation occurs as soon as you drive the car off the lot; it loses about 11% of its value. This is informally called the "lemon effect."  We will get more into that later on.

Let’s start with the tips.  Here is how to buy a new car/ used car.

Do your research - knowledge is power.

When you decide to buy a car you have to do your research. If you don't do your research and dive in you will get reeled in real quick by the salesman. Whether you are using the internet for the research or just visiting shops near your area, remember, knowledge is power. The more information you have on cars and their prices the better, also Auto sections are great places to start researching cars in your price range.

Let’s make this a bit simpler, there is the 20/4/10 Rule. If you do not know what this is then you can watch the video here.

You may or may not have a budget. But let’s just say that you do have a budget, you must watch the video above. The video will help you with your numbers.  Whether you lease your car or purchase it in cash, here are a few tips:

  1. Set your Budget -Start by deciding if you want to pay cash, take out a loan, or lease your new car.
  2. Choose the right car – Think about how you plan on using the car.
  3. Mentally separate your needs from your wants.
  4. Decide on whether you want to make one whole purchase OR if you want to pay monthly installments.

Understanding What Negative Equity Is.

If you are deciding to buy a car whether you lease it or not, you should know what negative equity is. The information will save you a lot of money and even avoid debt. What many customers forget is that cars depreciate very quickly. A car salesman in the US have one job: SELL!, then you have those other cars salesman who UPSELLS you their lease deals and what not. This is a trap. You never want to lease a car for more than 4 years.

Car dealerships know that they can make a hefty profit off of people who decide to lease a car. And usually, that is what happens. The prevailing myth that leasing a car is always bad isn't quite accurate; (leasing vs direct purchase) if you plan on keeping the car for less than three years, it's an okay deal. But if you want to hold onto your car for a good deal of time, paying that lease will usually leave you worse off than if you negotiated to buy the car.

Negative equity is defined as the following: you owe more money on your car loan than the vehicle itself is worth. This is also referred to as being “upside down” on a loan and it can have an impact on your ability to sell or trade-in your car for a new one.

Check out the videos below and see CBC news has to say about leasing automobiles.

How to buy a car without getting ripped off (Marketplace)

Car dealership ripoff: Hidden-camera investigation

Shop Around

When deciding to purchase a car, (new or used) it is always a smart choice to shop around. You never want to stick to two or three dealerships. Look for models that fit your specifications and budget. Use the internet. The internet hasa vast amount of information. A car salesperson's worst dream is an educated buyer: a buyer who knows what they does not want to be impulsive and is aware of what's available based on their budget. The more information you have on the cars you are searching for the less the salesman can feed you unnecessary information to reel you in. Searching around on the internet or in the newspaper can help you collect various information.

Save your preliminary results as reference points. So when the salesman is pitching you high numbers, you can detect all the red flags if you have done your homework. Find out what the dealership paid for the car(s) you're looking at. This will give you an upper hand when negotiating prices. On the other hand, if you do not feel like visiting dealerships you can browse the web for price quotes on vehicles. You can utilize this information to negotiate better prices. Know the salesperson’s tricks of the trade. Knowing the tricks of their trade will help you be prepared when you sit down to negotiate.

New car VS. Used Car

Next thing you want to consider is if you would like to purchase a used car or go for a brand new car. Used cars are great because they are relatively cheaper and the consumer has a glimpse of what to expect from the vehicle. Nevertheless, there are disadvantages. Know them before you pull the trigger.

The advantage:

a) Used cars are cheap, right? And so, insurance rates will also be lower. Insurance companies are aware that drivers of used cars tend to be more careful and price their insurance accordingly. A used car will depreciate less AFTER it's initial drastic depreciation.

The disadvantages:

a) There are disadvantages of purchasing a used vehicle. For one, higher dealer markup. Dealers know that they can make a killing on used cars, this is very true.

b) Buying a used car usually means a significant dealer markup. You can always negotiate the terms with the dealer.

c) Used cars have higher financing. Used cars don’t have as many safety features, have higher mileage, and are more likely to break down. That means insurance rates on used cars are likely going to be higher.

d) More maintenance. Used cars usually require more maintenance and this means more money.

e) Unknown mechanical and accident history of the vehicle. When you buy a used car, you don't necessarily have any information on who drove it, how often it was serviced, or whether it got into any accidents.

Of course, buying a new car has its advantages. The smell, touch, feels everything has to be considered. Also, it really does feel good to purchase a brand new car. Who doesn't?

For many, buying a new car can be like a spiritual experience. However, if you are not careful, it can burn a hole in your pocket. And for this, you must be careful and understand the disadvantages as well as the advantages of purchasing a new vehicle.

The advantages:

a) Assuming you don't have a budget you have the Freedom of choice. So you can buy the car of your dream vs. being limited to the cars that are available.

b) New car equals better financing. When you do decide to finance on a new car, your financing rates could be better than if you bought a used car.

c) Getting new features and tech. New cars are stocked with new cutting-edge features such as interactive touch screens on the dashboard, additional sensors and reversing cameras.

d) Be smart. Know what you're buying. When you buy a new car, you have an excellent idea of exactly what you're getting; there shouldn't be any uncertainty lurking the background about the car's history.

The disadvantages:

a) New car means more money. This one's a no-brainer. You spend more money on a new car than you do on a used one. And because you have no budget you tend to spend small amounts on car ornaments that you don't really need.

b) Immediate depreciation. As soon as you drive the car off the lot, it loses about 11% of its value as I mentioned earlier. This is informally called the "lemon effect."

c) Brand new cars have higher insurance costs.

d) Vague information for a model year. Since it’s a new model you can't really know if you are purchasing a mighty machine or a defective wreck.

Test Drive & Read the fine print carefully before you sign!

After you have made your decision on whether you will buy a used or new car and negotiated the numbers, test drive your potential car to be! During this stage, you will witness the true potential of a car salesman. While you are testing the vehicle, they will rant on and on about the neat features of the car. Don’t fall for this trick. Side Note: say you are driving the car and you realize that this is the car for you, unknowingly you will become attached to the car, and the salesperson will sniff this out from your body language and/or behavior.

This will only tell the salesperson that you WILL buy this car and leaves the door open for additional perks and services that will add on to your costs. Bring a friend with you so they can keep you in check and make sure you have your eyes on the road, (pun intended).

Lastly, when you are reading the paperwork make sure you read it carefully. Once you have thoroughly read the paperwork you can then sign it. All in all good luck!

Final Word

Whether you decide to purchase a new car or lease one, we advise that you go through the options you have. Also, take your time. Do not rush into things, this is a mistake many of us do.

We understand that buying a car has its joyfulness but as I always say its best to have all the information you need when deciding to buy a new car or used car.

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