Car Buying for Beginners – Kiplinger’s Personal Finance

Over the course of 2021, a global microchip shortage triggered supply shocks affecting a wide array of products, from smartphones to home appliances. But no industry has taken a bigger hit than the auto industry: In August 2021, for example, reduced inventory at Ford dealerships led to a 33% decline in U.S. sales compared with the previous year.

With increased demand amid the shortages, many car buyers are paying top dollar for their new or used vehicle—and sometimes for the car loan, too. If you’re looking to purchase and finance a car before supplies return to normal, do some comparison shopping to be sure you’re not overpaying for your vehicle or the loan.

Stick to a budget. “Car buying is emotional,” says Matt Degen, an editor at auto­motive website Kelley Blue Book. Many first-time buyers are eager to go for flashy models or slick features, at prices that may not fit their budget.

You’ll save money buying a used car, even though loan rates are a little higher for used vehicles. Recently, rates averaged 4.2% for a four-year new-car loan and 4.8% for a four-year used-car loan, according to

However, when you buy a used car, you run the risk that the vehicle will need major repairs or have maintenance issues. For more peace of mind, Degen encourages buyers to consider certified pre-owned (CPO) vehicles, which come with a manufacturer’s warranty.

If you’re choosing a new car, decide whether you want to buy or lease the vehicle. Buying is smart if you plan to hold on to the car until the loan is paid off and beyond (or if you plan to pay cash). Leasing often makes sense if you tend to trade in a car before you’ve paid off the loan. With a lease, you are paying mainly for the car’s depreciation over the term of the lease (typically three years). Monthly payments are usually lower than they are for a car loan, and repairs (but not maintenance) are covered as long as the warranty lasts. Be sure to negotiate just as hard for the price of a leased car (called the capitalized cost in leasing jargon) as you would for a purchase.

Even if the loan or lease payments fit your budget, be sure you understand how much interest you’re paying overall and for how long. The dealer’s finance and insurance office can extend a loan or manipulate a lease to lower your monthly payments, but that may not …….


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