Guest Post by Alice Stevens of BestCompany.com

Your car takes you to work, home, shopping, to visit friends, and even sometimes on vacation. Cars play an important role in your daily life. Buying a new or new-to-you car is an important purchase and an expensive one. However, investing in a reliable car will help keep you safe on the road.

Before you start looking at cars (and before you make a purchase), here are four questions you’ll want to answer:

  • What is your budget?
  • What are your car loan options?
  • Are you buying new or used?
  • What does the warranty coverage look like?

Answering these questions will help you be a smart shopper and make a good purchase.

What is your budget?

Spend some time looking at your monthly income and expenses. How big of a car payment can you afford? What is the ideal car payment amount for you?

If you’ve been saving to buy a car, see what your savings account looks like. Take this number into account as you figure out how much you want to put down and how much of the cost you want to finance.

Use this information to figure out how much you want to borrow and stick to that number. Commitment to your budget can make finding a good car in your price range take longer, but it will be worth it for your bottom line. It may even help you negotiate at the dealership.

What are your car loan options?

Dealerships work with banks to offer financing to car buyers. While this may be convenient, you might be able to find a better interest rate from your own bank. 

Finding the lowest interest rate tends to be better for you in the long run. Taking on debt means paying interest, and paying interest means you’ll spend more money on your car purchase than it initially cost. 

When you’re at the dealership, stay focused on the total cost of the car, including the interest rate, especially if you’re talking about financing through the dealership. You can keep monthly payments in mind, but stay focused on the total cost because focusing on monthly payments can distract you from considering the interest rate costs. 

Make sure you’ve done your financial homework before you get to the dealership; you’ll be better prepared to negotiate and more able to recognize if you’re making a good financial decision for yourself.

Are you buying new or used?

Once you know how much you’re willing and able to spend, it’s time to decide between buying used and buying new.

Whether you buy a new or used car, it’s important to research the car’s safety ratings and safety features. It’s also a good idea to take a look at the depreciation charts to get a sense of what the resale value could be. 

There are some advantages to buying a new car:

  • It has exceptionally low mileage
  • Everything is in working order
  • It’s never been in an accident
  • It comes with exclusionary warranty coverage and a longer powertrain warranty

There are also disadvantages:

  • New cars are more expensive than used cars
  • The value of a new car depreciates significantly as soon as you drive it off the dealer’s lot

It usually makes the most financial sense to buy a used car, but there are several things you need to think about before settling on any used car.

What is the car’s mileage?

Do your best to find a used car will low mileage. The lower the miles on the car, the longer it will last you. Since cars are such a large expense, it’s important to find one that will last longer than the loan term you sign up for.

What is the car’s history?

You also need to investigate the car’s accident and damage history. You can do this by looking at the CarFax. If it’s been in an accident, you may want to rule it out. See what damage is noted in the CarFax. 

Accidents show up in the CarFax, but some minor damage may not. So, be sure to look at the car yourself before you purchase it. It can also be a good idea to have a mechanic perform an inspection to make sure it’s a good car.

It’s also important to look at the title. You’ll most likely want to buy a clean title. Any other title indicates that the vehicle had severe damage or was totaled. It’s generally a good idea to avoid those kinds of titles unless you’re willing to take on some risk and potentially have a harder time selling the car in the future.

What does the warranty coverage look like?

Warranties only cover repairs resulting from a malfunction or breakdown. They do not cover normal wear and tear or damages resulting from poor car maintenance

New cars come with a factory warranty that typically lasts 12,000 to 36,000 miles (1 to 2 years). It’s also common for them to have a powertrain warranty that lasts longer, generally 60,000 miles (5 years).

If you’re buying a used car, there’s a chance that the factory warranty or the original powertrain warranty is still in effect, especially if it has low mileage. If the used car has higher mileage and you want warranty coverage, you can purchase an extended warranty.

There are three types of extended car warranty coverage: exclusionary, stated-component, and powertrain. Exclusionary coverage is often referred to as bumper-to-bumper coverage because it covers most car parts except for those listed explicitly in the contract. 

Stated-component coverage offers the next most comprehensive coverage. It covers the car parts specifically listed in the contract, so it offers less coverage than an exclusionary warranty.

The powertrain warranty covers the vehicle’s most essential parts, like the transmission and engine. While it offers less coverage, it focuses on the most important car parts and tends to be cheaper than the other kinds of extended warranties.

Before deciding to purchase an extended warranty, it’s a good idea to consider your finances and how reliable your car is. If you’re interested in the peace of mind an extended warranty offers, then it can be a worthwhile investment.

Thinking through these four questions will help you be more confident as you car shop and make good purchasing decisions.