Even 6-year old boys dream of raising hell in a Ferrari. So when time comes to buy a car it is only natural that our senses get clouded over and reasoning becomes tough.

A spanking new and shiny car does seem the most desirable option. But you also need to weigh the benefits of buying a used set of wheels. Buying entirely with cash is not an option for a majority of us. We have to depend on loans or financing to fund the rest after pitching in the down payment.

There are a lot of things that you need to consider before buying a car. Here are a few tips for you to make a wise purchase and avoid taking on more financial stress than necessary.

1) Understand Your Needs

If you have a young and growing family you obviously will need to invest in upgrades as and when your priorities change. If you have a small car with seating for four right now you will find that it is no more sufficient when you have kids.

School, tuitions and activity classes will create an entirely new schedule for you where you have to spend hours running around town. Summer camps, picnics, trekking and outdoor activities will also require you to make a sensible purchase of a bigger car or SUV.

Some people require upgrades every three years because their friends do so or because they absolutely love being the envied owners of latest set of wheels.

Whatever maybe your reason, factor in how much a new car will cost you. Do not forget to include insurance costs, stamp duty and registration expenses as well. Add up everything and arrive at the final cost.

If you are single remember that you do not need a $40,000 SUV. Sure you will turn heads but the hole in your pocket will be getting bigger.

2) Do Not Break up Your Cost into Monthly Payments

This is one of the easiest ways to end up buying a car that will crash your budget. If you are opting for financing the salesman at the dealership will offer you a breakup of what you will be paying per month. You will soon be suffering from the problem of plenty with restructuring options, longer term loans, flexible interest rates and dealer-backed loan facilities to choose from.

Almost any car will appear affordable when monthly payment is alone taken into account. Do not fall prey to this tactic.

Even a single year extra on the loan or a percentage point more on interest rate will jack up the total cost by several thousand dollars. If you want to sell your $25,000 sedan after four years you might not be able to close your loan with the resale price you get. You will still have to shell out a few thousand dollars from your pocket or finance the balance into the loan you take on your new car.

This does not present a pretty financial picture.

So calculate how much you will be paying for your car till you can call it your own or the loan ends. Is it far more than the cost of the car? If you sell in between will there be a heavy loan hanging around your neck? Looker at the bigger and long-term picture before you buy.

3) Make a Bigger down Payment

Save up to plough in a big down payment for your car. This will drastically cut down on how much you will spend on EMIs. A smaller loan also means that if you plan to sell your car in a few years you will owe much less than what your car is worth.

New cars depreciate by up to 40% in the first year of purchase, so take into account that as well. You can be saved from the sting of depreciation if you buy a used car which is a very wise financial decision when you factor in all expenses and costs of acquiring a brand new car.

A smaller loan will also help you weather the blow of depreciation better.

4) Set a Ceiling to How Much You Can Spend

Extensive research is essential to arrive at a fair price for a car. Kelly Blue Book, Edmunds.com and the NADA guidelines are your best bet to know the average selling price of the model you have your heart set on.

You can contact dealerships in your locality online or pay a visit to them to find out what prices are on offer. Zero in on two best places and start shopping with them.

Start from a base price which the dealer will in all probability reject but you can be sure that he will be in no hurry to say no. It is crucial that you tell him in certain terms that you will drive the car off the lot if he accepts your base offer.

A customer with a strong intent to buy will push any salesman to do as much as he can to close the deal. Obviously your first offer will be met with a counter offer that is a couple of hundred dollars below the sticker price. You can inch up your offer a bit more and say that this is in line with the market average.

Your aim is to buy the car at 5-10% below the fair purchase price stated in Kelley Blue Book. Let your salesman and his manager know that you have done your homework and that you are only quoting a price that prevails in your area.

With a little more give and take you should be able to get a price that is somewhere between the highest you are willing to pay and your base offer.

5) Be Willing to Walk Away

Most buyers become emotionally attached to the car they are negotiating for at dealerships and hate to walk away without sealing a deal. And this is also exactly where you give the salesman a leg up when negotiating with you.

Be willing to walk away if the price is not right. You can leave your number and ask the salesman to call you if they are willing to come down on the price. You can expect a call in less than a week because dealerships never allow money to walk out of the door.

If not, there is always another day and place to bag the best deal for your budget.


A car is not an investment. It does not appreciate with time unless it is a priceless vintage Merc. A car is a lifestyle choice so do not spend more than what you can afford. A prudent purchase also means money saved and money earned. Plan well and spot a good bargain, and you will be a happy man/woman driving your new beauty.

Sam Levy is the Founder of AutoSmart – a used car dealership company based in Harvey that deals with quality pre-owned vehicles. Sam and his team provide supreme customer service to their clients, and a variety of options to help them finance their dream car.