Buying a car is a significant financial decision that deserves careful consideration. Primarily, you’ll need to understand how much car you can afford, how you’ll pay for and insure the vehicle, and, if you need financing, how auto loan rates determine what your budget can accommodate.

Once you find a vehicle that meets your needs, the sticker price of a new car isn’t the only potential challenge during the purchasing process. You also need to know how to:

• Assess expected maintenance costs
• Evaluate the condition of a used “new-to-you” vehicle
• Compare the pros and cons of your options
• Negotiate the best deal

Considering everything involved in buying a car, it’s no surprise that 87% of Americans dislike going to traditional car dealerships. Want to buy your next car with confidence? Consider these tips:

Understand how car loans work.

The first question is whether you need a car loan at all. If you can pay with cash, it might be the right decision to do so―you’ll save on monthly payments and interest and you’ll never have to worry about ‘negative equity,’ which is when you owe more on the loan than the car is worth when you want to trade it in or sell it.

Chances are, though, that you’ll need to find an auto loan, especially if you want a new car. But you’re not alone. Approximately 40% of Americans have a car loan payment.

When you take out an auto loan, you will pay interest as a part of financing your new vehicle. It’s the price you pay for borrowing the money and repaying it in affordable monthly installments. In 2019, the average cost for a new car was $34,047. At this average price, without a down payment or trade-in, with an auto loan rate of 6% and a 60-month loan period, you would pay $5,446.43 in interest over the life of your loan for a total cost of $39,493.43.

The auto loan rate and the loan term determine how much interest you will pay. The shorter the loan term, the higher your monthly payments will be, but the less you’ll pay in interest.

Vehicles are depreciable assets. Unlike your home, their value decreases over time. A vehicle’s value drops by an estimated 10% in the first month of ownership, 20% in the first year, and 40% in five years. Therefore, at the end of a 60-month loan, a car that initially cost $34,047 would typically be worth about $20,400 depending on the overall condition. Depending on how long you plan to keep your car, depreciation may be an issue. If you want to trade in a car before it’s paid off, you may end up with negative equity, needing to pay off your old loan as well as taking on the new loan.

There are a few steps to take to control how much interest you pay and reduce the risk of negative equity:

• Make a large down payment. The less you borrow, the less interest you’ll pay, and you’ll pay down the principal balance faster, meaning you’ll be less likely later to owe more than the car is worth.
• Compare auto loan rates from multiple lenders and dealers to make sure you get the best rate possible.
• Make extra payments when you can. When you select a loan, check with the lender if there are prepayment penalties for paying the loan off early. OnPoint auto loans do not have prepayment penalties, but other lenders may charge them. If you can pay extra from time to time during the loan, you’ll pay it off faster, again saving interest.

Understanding your obligations and options with an auto loan will help you approach the purchasing process with confidence.

Apply for preapproval for an auto loan.

Before you start shopping for a specific car, you can take a lot of the guesswork out of the process by applying for a preapproved auto loan with a credit union or bank.

Knowing the rate, the amount, and the loan term you qualify for will help you narrow down your search to affordable cars. You’ll also be able to go to dealerships without worrying about whether you’ll be approved for financing, and you might be able to use that preapproval to negotiate an even better rate from the dealer. Be sure to check your lender’s auto loan requirements, such as model year and mileage guidelines.

Consider paying cash for a used car.

If you want to avoid having a monthly payment, but can’t afford to pay cash for a new car, there are many viable options on the used car market. Depending on availability, you may be able to find a suitable ride for anywhere between $2,000 and $6,000.

Oregon is considered one of the best states in which to buy a used car for two reasons:

• 0% vehicle sales tax
• Documentation fees cannot exceed $150.

Used cars might require more maintenance than new cars, and are less likely to come with warranties that help cover those costs. You’ll want to plan ahead and make room in your budget to save for those future expenses. You can check out resources such as Consumer Reports or Edmunds.com for reliability ratings for used cars.

Always shop around for the best price.

Start by visiting several dealers before making a final decision, or search online with OnPoint and AutoSMART. Not only does inventory vary from place to place, but you may be able to score a better deal or negotiate based on other options you’ve seen.

Once you find a car you like, check the Kelley Blue Book value to ensure the dealer is asking a fair price. You should also note the car’s vehicle identification number (VIN) and research its history online. Performing due diligence to price check and understand the vehicle’s history is a critical step—especially when buying an older car. If you skip this step, you could end up paying high unexpected maintenance fees.

You will also want the best deal on your trade-in. In addition to using Kelley Blue Book to get a fair price on your purchase, you can also discover what your trade-in is worth. Shopping around for the best deal includes both the purchase price and the value you will receive for your trade-in.

Take used vehicles in for an inspection.

If you’re like most people, you probably take your car to a professional when something goes wrong. So when it comes time to inspect a used vehicle, you might get anxious. After all, how do you tell if anything is wrong with the car during a single test drive?

The answer is simple―take the car to a mechanic. You should expect to pay between $100 and $150 for an inspection, but doing so will save you a lot of money in the long run if there’s a major problem. Consider it a warning sign if the vehicle seller isn’t willing to let you take the car in.

Negotiate everything.

Always negotiate the final price of a vehicle. There’s usually some wiggle room on the sticker price at dealerships―although some dealerships do have ‘no-haggle’ policies―and negotiation is the name of the game on the secondary market. In addition to the car’s price, you can negotiate rebates, trade-in value, interest rates, maintenance and warranties.

Many dealers will try to get you to focus on an affordable monthly payment. While it’s certainly important to secure an affordable monthly payment, that can distract you from other opportunities for savings. Push for the most value possible in each aspect of your purchase, then find the best possible financing option based on the final price you have negotiated.

If you’re paying cash for a used car, you’ll have a lot of negotiating power. Take full advantage of your research to assist your argument.

Don’t forget about car insurance.

Before you hand over any money for a car or apply for a loan, get an insurance quote. You need to ensure you can afford the necessary coverage. You can get quotes online, but it’s worth calling an agent to ask if you qualify for any special discounts. If you have a clean driving record, there’s a good chance you can shave a few dollars off your insurance premium.

Buy and drive with confidence.

Preparing before heading to the dealership can save you a lot of unnecessary anxiety. With the right financial planning and negotiation know-how, you can secure a great deal on a car that suits your needs.

Want to find dealerships that work directly with OnPoint? You can search thousands of new and used vehicles near you with OnPoint and AutoSMART. If you’ve got a make and model in mind, it’s a stress-free way to get started, and you can secure an OnPoint auto loan right at the dealership.