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Buying a Car on a Budget: Four Things to Know

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Buying a car is a big expense that most people will take years to pay off. Plus, in addition to the price of the car itself, there are many costs — including lease or loan payments, insurance, gas and maintenance — that can quickly cut into your monthly budget if you're not ready for them.

So, if you’re looking for a car on a tight budget, it’s a good idea to plan ahead and look for ways to cut down your expenses. Here are four things to consider:

1. Time your purchase to tempt the dealership. Dealers and their salespeople often have quotas to meet. Try to make this work in your favor by going car shopping at the end of the month. Salespeople may be more willing to negotiate if they need you to buy a car so they can make their numbers for the month.

You can also consider car shopping during bad weather. On a cold, snowy day or a miserable rainy evening, nobody wants to set foot outside — much less walk around a car lot. That’s good news for you because salespeople might be nervous about the lack of customers and more willing to negotiate.

Going car shopping during the middle of the week is better than the weekend because fewer customers will be at the dealership. Also, think about car shopping in the summer; deals are abundant as the weather gets warmer and dealerships slash prices on the previous year’s inventory.

2. Don’t assume you need upgrades just because they’re offered. Extras like power windows and a sunroof aren’t the only upgrades a dealer will try to sell you. In many cases, dealers will also try to sell protection packages that aren’t worth the cash you spend on them and are pure profit for the dealership — either you’ll never use them or the repair won’t cost as much as the package.

Items such as VIN etching, fabric protection and extended warranties are often not worth it. There are always exceptions to the rule, but in most cases if you do feel you need one of these items, you can usually find it cheaper through third-party vendors if you do a bit of research.

3. Be willing to pay some fees up front. You’ll be hit with a lot of extra expenses when you buy a car: taxes, license, registration, title and processing fees, to name a few. Try to pay as many of these as possible up front to avoid incurring interest on them if they are included in your financing.

Make sure these expenses are itemized so you can identify which of them are government-mandated and which are merely processing fees (and pure profit for the dealer).

Be aware that the Truth In Lending Act (Regulation Z) requires the dealer to disclose the full cash price or cost of credit to you. This includes the total sales price, the principal loan amount, the finance charge, the annual percentage rate and the terms of repayment. This information should give you a clear picture of what you’ll actually pay in total.

4. Read any contract thoroughly. This may seem obvious, but it’s something many people take for granted. Before you sign on the dotted line, it’s generally wise to sleep on it and be sure you're only buying what you need. This will also give you time to read the contract in full and make sure the payments will work with your budget.

Don’t let the dealership pressure you into signing something until you have had time to process all of the information. Letting your emotions drive your decision could lead you to a purchase you end up regretting.

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