In today’s challenging economic climate, purchasing a new or used vehicle has become an incredibly frustrating task. Skyrocketing prices and unfavorable economic conditions have made it increasingly difficult for consumers to find affordable options. However, with some research and expert tips, you can navigate this challenging landscape and make a wise car-buying decision.
Renowned celebrity author, podcaster, and financial advisor Suze Orman has always emphasized the importance of spending money wisely and making it work for you. In order to achieve financial freedom, it is crucial to avoid overpaying for anything and instead redirect those extra savings towards investments and retirement planning. When it comes to buying a car, Orman is brutally honest about its financial implications.
According to Orman, “For starters, we need to get on the same page: A car is the worst investment. Why? Because the moment you drive it off the lot, it starts losing value. When you eventually sell it, you will never recoup what you paid for it. Understand? Good.”
With Orman’s candid advice in mind, let’s explore six valuable car-buying tips that can help you save money and make a wise financial decision.
1. Boost Your Credit Score: A solid credit score is crucial when it comes to securing a car loan at favorable rates. Whether you are building your credit from scratch or recovering from a setback, it is essential to establish a strong credit foundation before beginning the car-shopping process. Orman suggests paying bills and credit card balances on time to improve your credit score and increase your chances of securing a loan with low interest rates.
2. Buy on the Cheap: Unless you are purchasing a car with the intention of it becoming a vintage or collector’s item, Orman recommends going for a budget-friendly option. All cars, whether new or used, start depreciating as soon as you drive them off the lot. Therefore, your goal should be to buy the least expensive car possible. Every dollar you save on the down payment and monthly loan payment can be allocated towards other financial needs.
3. Target a Gently Used Vehicle: To minimize expenses, always consider buying a used car. The most significant drop in a car’s value occurs during the first few years of ownership. Purchasing a car that is a few years old allows you to avoid paying for the initial years of significant depreciation. Look for a gently used car that you can use for several years after paying it off.
4. Get a Three-Year Loan: When securing a car loan, opt for a term of no longer than three years. Avoid the temptation of leasing, as it is considered a “colossal waste of money.” Paying interest over an extended period on a devalued asset is not financially beneficial. Despite the potential increase in maintenance costs associated with owning a used car, you will still save money by avoiding long payment terms.
5. Shop Around for the Best Loan: Just like shopping for a car, it is essential to explore multiple options before finalizing a car loan. Orman advises against blindly accepting the deal offered by a dealer and encourages considering credit unions as well. The average used car loan from a credit union typically has a lower interest rate compared to traditional banks. Additionally, it is preferable to opt for a traditional car loan instead of using a home equity line of credit (HELOC) for financing. While losing a car is unfortunate, it is a better outcome than losing your house.
6. Get an EV Tax Break: Although federal tax credits for electric vehicles (EVs) and plug-in hybrids have undergone revisions, there are still tax breaks available for both new and used EVs. However, it is important to consider the upfront costs associated with purchasing an EV. Assess your needs and evaluate how an EV purchase will impact your finances before making a decision.
By following these valuable car-buying tips from Suze Orman, you can make a well-informed decision while saving money. Remember, being a smart consumer is crucial, especially in expensive and challenging markets.