Get access to the same vehicle valuation tool that dealers rely on. With Black Book, you’ll have insider data to accurately assess trade-in and purchase values—empowering you to negotiate the best possible deal.
The term “upside down” doesn’t sound like much fun. Generally speaking, you want to be “right side up”, and that is definitely the case when it comes to an auto loan. Within the auto industry, being upside down in a car loan simply means that the balance on your loan is greater than the value of your car. Below are some helpful tips on how to make certain that you don’t find yourself in this position on your car loan.
Buying New Isn’t Always Best
If you’re thinking of buying a new car, you have to realize that it will lose value as soon as you drive it off the dealer’s lot. Once you hit the street, that car or truck technically becomes used, and it’s no longer priced like something that is brand-new. The speed at which vehicles lose value is greatest in the first year of ownership, where the average new car loses 23% of its value in just the first 12 months. If you want to avoid being upside-down on a car loan, a new car may not be the best choice for you.
Buy Vehicles With The “Best Value”, Not The “Best Price”
Buying new is nice, but financially, it can set you back. On the other hand you can buy an old clunker, but risk throwing money at repairs. So, where is the sweet spot? Our recommendation is that you should buy a vehicle that is between 2 and 4 years old, is still under its factory warranty, has plenty of useful life left in it, and still looks and drives like new. An average car or truck will decline 38% in value in the first three years, so buying one in this range offers savings of 30-40% off its price compared to new. In other words, someone else’s loss can be your savings.
It also helps to buy a car (whether new or used) that has a good resale value. Research depreciation, maintenance costs, and more with the free CarEdge Research Hub.
Don’t Be Lured Into Longer Loans
In years past, a 5-year loan was the longest loan term offered by lenders. Today, car buyers are lured into the prospect of lower monthly payment; not by getting a better price, but by just stretching out the time period to pay off the vehicle. Loans of 6, 7, and even 8 years, are now common in vehicle financing. This is a dangerous path that car buyers should try to avoid. Learn more about the serious risks of 84-month car loans.
Credit Scores And Interest Rates Drive Monthly Payments
As most are aware, lower credit scores translate into higher loan interest rates, and as a result, higher monthly car payments. As a car shopper, you’ll want to check your credit report ahead of time. Make sure that the report is accurate, and doesn’t have any errors. Importantly, the lower your interest rate, the quicker your loan balance will fall, and the less likely that you’ll be upside down.
Big Down Payments Can Avoid Big Loan Problems
If you have the financial flexibility, one of the best ways to ensure that you’re not upside down in a car loan is to make a big down payment when you buy. Another option is to make a larger down payment when you refinance your auto loan.
The more money you put down, the lower your loan balance, and the greater the chance that you won’t have an upside-down car loan. Better yet, your monthly payments will be lower with a larger down payment. Those who put down little or no money for a down payment increase their chances that they will be upside down in their loan for years to come.
Final Thoughts: You CAN Avoid Upside-Down Car Loans
Staying financially “right side up” with your car loan comes down to smart choices: avoid long loan terms, consider buying a used vehicle with solid resale value, and put down as much as possible upfront. By being aware of depreciation, improving your credit score, and securing a favorable loan, you can reduce the risk of an upside-down car loan. With the right approach, you can drive away with a deal that works in your favor.
When buying a car, most people focus on the sticker price, but the total cost of owning a car goes far beyond that initial figure. While the purchase price is a major consideration, ongoing costs like insurance, maintenance, depreciation, and financing can add up quickly. Understanding these hidden expenses is crucial for making a smart financial decision. Whether you’re buying new or used, being aware of the true cost of owning a vehicle can save you from unexpected financial strain down the road.
Depreciation
Depreciation represents the value loss of a vehicle from the moment it’s purchased. A car’s value often drops as soon as it’s driven off the lot, and this affects both new and used vehicles. While you don’t pay depreciation directly, it’s important to account for it if you plan to sell your vehicle in the future.
Luckily, calculating depreciation is straightforward. At the CarEdge Research Hub, we provide updated depreciation data to give you a clear picture of your car’s value over time. Check out depreciation rates for your car to make more informed decisions.
In rare cases, vehicles may increase in value due to high demand, such as collector cars. But for the majority of cars, depreciation is inevitable.
Insurance Premiums
When you purchase a vehicle, you will be required to purchase insurance. If you are financing a vehicle, it will be mandatory that you get full coverage insurance. If you purchase a car and pay it in full, you can choose to get liability insurance. Full coverage is going to cost more due to the comprehensive coverage that you get compared to liability insurance. Insurance policies can cost anywhere from $50 up to $300+ per month depending on the vehicle, the type of coverage you get, and your recent driving history.
For those with speeding tickets or accidents on their record, insurance costs may be higher. Always get insurance quotes before purchasing a vehicle to ensure you can afford both the car payment and the insurance premium.
Maintenance & Repairs
Maintenance and repairs are inevitable parts of car ownership, and these costs can vary depending on the make, model, and age of your vehicle. Regular maintenance like oil changes, tire rotations, and brake checks are essential for keeping your car in top condition and can help you avoid costly repairs down the road.
To reduce long-term costs, follow your vehicle’s maintenance schedule and consider setting aside an emergency fund for unexpected repairs, such as transmission or suspension work. Some repairs are unavoidable, but taking proactive steps can minimize expensive breakdowns.
When financing a car, interest can significantly increase the total cost of ownership. The longer the loan term and the higher the interest rate, the more you’ll end up paying. Let’s break it down with an example:
Imagine you finance a car for $30,000 with a 5% annual percentage rate (APR) over 60 months. Over the course of the loan, you would pay about $3,968 in interest, bringing the total cost of the car to $33,968. If you extend the loan term to 72 months, you’ll pay an additional $1,043 in interest.
To minimize the cost of interest, consider opting for a shorter loan term and shop around for the lowest APR. If possible, improve your credit score to qualify for better rates. Additionally, making a larger down payment can reduce the total loan amount, helping you save on interest over time.
There are a few other expenses that you should take into consideration when it comes to owning a car. State registration fees are a great example of a yearly fee you can count on paying each year you register your vehicle. This will vary state by state, so check with your local DMV to see what your current state registration fees are. Many states levy ‘property taxes’ on vehicles based on the value of the car. These vehicle property taxes can add up to a few thousand dollars per year for luxury vehicles and expensive trucks.
Tires are another maintenance item that can add up over the years. These days, a set of four quality tires can cost $1,000 with installation and disposal fees. Tires increase in cost with larger and more uncommon sizes.
A Car’s Total Cost of Ownership Can Vary Widely
In conclusion, the total cost of owning a car goes far beyond the initial purchase price. Key factors like depreciation, insurance, maintenance, and financing charges can significantly impact your overall expenses. Some cars depreciate faster, others come with higher maintenance costs, and interest rates on car loans can add up over time. Be sure to evaluate all these variables when determining whether a vehicle is the right financial decision for you. By understanding the true cost of ownership, you can make smarter, more informed choices.
It’s time to say goodbye to your old reliable car, but should you sell it privately or trade it in? Both options have their pros and cons, but with the right approach, you can minimize financial losses. Here are 10 tips to help you make the best decision.
10 Car-Selling Tips To Consider
1. Don’t name your price first
If a salesperson asks how much you want for your car, don’t give them a number. Let them make the first offer to avoid limiting your potential trade-in value. If asked, let them know that your primary interest is minimizing your net cost, or trade difference, after an allowance for your trade. Avoid providing any firm numbers, despite their repeated attempts to enquire, as they will be resolute in getting you to throw out the first number.
2. Tax benefits of trading in
Trading in your vehicle at the dealership can save you on sales tax. When you trade-in, you subtract the value of your car from the sales price of the new one, and you only pay sales tax on the difference in value. For example, if your trade-in is worth $20,000 and your state has a 5% tax, you could save $1,000 compared to selling it privately.
3. Don’t clean the car too early
If you’re just browsing, don’t clean out your car beforehand. A spotless trunk signals you’re ready to buy, potentially weakening your negotiation position.
4. Watch out for the higher offer trick
Dealerships may offer more for your trade-in but mark up the price of the new car. Don’t be fooled by the dealer that simply offers you the highest price for your car, as they may be getting you on the other side. Always look at the total cost.
5. Fix the obvious issues
If selling privately, get the obvious repairs fixed up front, and perform the routine service, like an oil and filter change. If your vehicle needs obvious repairs, private buyers will discount its value by at least 2X of the cost of the repair, as they will be concerned that it can’t be fixed, or that repairs will end up being more costly. Buyers don’t want to inherit a problem; they want a car that they can drive home with confidence, and is trouble-free.
6. Check your car’s history report
Run a vehicle history report before selling. Surprises on a report could deter buyers or lower your asking price. If you’re the original owner and have never had any problems or accidents, it’s possible to skip this step.
7. Organize vehicle documentation
Present your service records and manuals in an organized manner to instill buyer confidence. If you have them, make sure to include the vehicle registration, window sticker and any operating manuals that you received, so that you can present them to any possible buyer.
8. Trade where it makes sense
If your trade-in doesn’t match the dealership’s typical inventory, expect a lower offer. If you are at the BMW dealership, and you’re looking to trade in your 10 year-old Corolla with 120,000 miles, don’t expect a good offer. They won’t want your car, and will sell it straight to a wholesaler. Keep this in mind when thinking about a trade-in.
9. Meet in a public place
For safety, meet prospective buyers in public spaces like designated safe meeting zones rather than your home.
10. Pay off loans before selling
If possible, pay off any loans before selling. Having a clean title in hand, goes a long way towards resulting in a seamless transaction, versus having to get a bank involved. Sometimes banks will take weeks to send you a title that is free of liens, and that is enough to sour a lot of car deals. Similarly, make sure that you ask the private buyer how they intend to pay for the car.
Conclusion
Selling or trading your car doesn’t have to be stressful. By fixing minor issues, getting paperwork in order, and strategically timing your sale, you’ll increase your chances of getting a good offer. The more certainty you provide the buyer, the more they’ll be willing to pay. Learn more about resale values with CarEdge Research.
One of the most common questions we are often asked is, “When is the best time to buy a car in order to get the best price?” The answer is simple: year-end sales are your best bet. Let’s break down why the end of the year is ideal for negotiating a great car deal.
Why Year-End Sales Matter
Dealerships are highly motivated to sell at the end of the month and year. Every day, sales managers review their inventory to identify which cars need to sell quickly. The longer a vehicle sits on the lot, the more it costs the dealer, which increases the likelihood of a discount.
Using CarEdge Insights, you can see how long cars have been sitting on dealer lots, giving you an edge in negotiations. Plus, dealerships push hardest at the end of the month to hit sales goals, offering the best deals during this period.
December 31st: The Best Day to Buy a Car
December 31st is the absolute best day to buy a car. Not only are year-end incentives in full swing, but dealerships are closing their financial books, and some may face inventory taxes on unsold cars. This creates even more pressure to clear inventory and offer deeper discounts.
What about other times of the year?
Can’t wait for December? The last day of each month is also a great time to buy. Sales targets drive dealerships to offer better deals as they aim to hit their numbers. You can still find solid discounts, even if it’s not year-end.
Maximize Your Savings With Free Tools
Plan your car purchase for the end of the month for the best deal. To really maximize savings, head to the dealership on New Year’s Eve and be prepared to negotiate. Using CarEdge Insights, you’ll have the information you need to get a great deal before the clock strikes midnight. Rather have a pro negotiate for you? Learn more about CarEdge Concierge.
Finally, some good news for car shoppers: October 2024 is packed with zero-down lease deals. As year-end deals approach, manufacturers are rolling out some serious lease incentives to sell remaining inventory before the new year. Right now, it’s totally possible to get into a new car with no money down. Be sure to check back regularly, as automakers update these offers during the first week of each month!
The Best Lease Deal: Lease the 2024 Tacoma SR5 for $449/month with $0 due at signing. It’s very rare to see a best-selling truck lease special with no money down!
These October 2024 lease deals offer an excellent chance to drive away with a new vehicle with zero money down. Whether you’re looking for a truck, an electric SUV, or a traditional crossover, these zero-down leases are hard to beat. And now for even better news: We expect the number of zero-down leases to grow in the months ahead. With 2025 models arriving on dealer lots, year-end sales are set to be huge.
Keep checking back for updates, as more deals are on the horizon.
CarEdge Insights
![Every Zero-Down Lease Deal This Month [October 2024]](https://caredge.com/wp-content/uploads/2024/03/2024-09-16_Cheapest-Leases-This-Month_Blog-Header-Image_1920x1080_v1-1080x675.jpg)
