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One of the challenges consumers face is making wise large-ticket purchases. Besides the decision to purchase a home, the largest financial decision for many individuals is the decision to buy a vehicle. While it is important to have a car for convenient transportation, having a car can become a significant financial burden if you must borrow money to pay for the purchase, if a car is not in your budget, or if the car costs more than you planned. This financial burden can keep you from attaining other more important goals.

There are a number of important topics you must understand before you buy or lease a new or used vehicle. Before you buy or lease a vehicle, you should understand the following three subjects well: choosing a vehicle, steps to take before you go looking, and steps to take after you have found the vehicle. Know your budget and understand safety reports, automobile reports, and insurance. Before you go looking for a vehicle, understand the pricing on new and used vehicles, holdbacks, warranties, service contracts, and lemon laws. After you have found the vehicle you want to buy, be sure you look at vehicle reports, have the vehicle checked by a mechanic, and review the vehicle’s service or maintenance records.

Before you begin the process of buying a vehicle, there are five general guidelines of the buying or leasing process that you should understand. These guidelines include the following:

  1. Know the terminology: in addition to knowing the language of finance, you must know the language of auto ownership and leasing.
  2. Narrow your choices and pick your vehicle: you must decide what you are looking for and learn to comparison shop. No one will watch your money like you will.
  3. Determine the dealer invoice and use it to calculate the vehicle’s total price, and then negotiate with the dealer using this amount as a starting point for negotiations. Negotiating well can save you thousands of dollars on your vehicle.
  4. Finance the purchase if you must (lease): if you need to finance (lease) a vehicle, work to minimize the costs you pay.
  5. Enjoy your purchase and keep it well maintained: take good care of your vehicle and it will take good care of you.

While the process of buying a used car is similar to the process of buying or leasing a new car, there are additional challenges to purchasing a used car that are important to consider, including locating, evaluating, negotiating, and financing the used car.

Leasing has become a popular way for many people to have a car because the up-front costs of leasing are lower than the up-front costs of buying. Additional challenges of leasing include negotiating, calculating the costs, and understanding lease warranties.


Now that you have completed this section, ask yourself the following questions:

  1. Can you determine how a car fits into your financial plan?
  2. Do you understand the key issues of auto ownership?
  3. Do you understand how to buy or lease a new car, and do you understand the lease versus buy decision?
  4. Do you understand the challenges of buying a used vehicle?
  5. Do you understand the special challenges of leasing?

If you can answer yes to each of these questions, you are ready to move on to the next section!


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