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Get into gear with a cost-efficient auto purchase

January 15, 2015

That two-door coupe you've loved to drive for the last few years just isn't going to cut it with your growing family. Or maybe your kids have all flown the coop and now you can finally trade in the minivan you've been driving for a hip convertible.

Choosing the right car for your budget can save you plenty of hassle.
Whatever the case, when you're ready to swap out your automobile, it's important to gather as much information as you can in order to make the car-buying process as painless—and cheap—as possible. Here are a few tips to consider when buying a vehicle.

Set your budget

Before you even start to look at cars or get caught up in fancy options, you'll want to figure out what you can afford.

The upfront expense is not the only figure you should take into account. Cars can be costly to operate, so calculating what you'll be paying in auto insurance, gas costs and maintenance or repairs can prevent you from going over your head and into the red.

The average consumer doles out 11 percent of their monthly gross income on a car payment, according to estimates from Edmunds.com, a car website. But certified financial planner Chris Cooper told CNN that he thinks that figure is too expensive for the majority of Americans.

Cooper believes spending 8 percent of your monthly gross income on a car payment will keep you on a better financial road. He said you should try to pay even less than 8 percent if you are burdened with other debt.

But should you try to land a longer loan in order reach that percentage of your monthly income? Cooper said it's best to stick to short-term loans.

“Figure out the payment you can afford on a 36-month loan,” he said.

The average new car loses nearly 20 percent of its value when you drive it off the lot and around 15 percent of its value annually for its first five years before depreciation levels off later in its lifespan. That makes owning a car for an extended period of time more affordable.

A used car will cost less up front, but it's generally a good idea to put some of that money you'll save on initial costs toward a warranty or protection plan in order to protect yourself against any stumbling blocks down the road.

To lease or loan

Unless you can afford to purchase the entirety of the car up front—which many people cannot—there are two financial points that you'll have to consider when looking for an automobile:  to lease or loan.

A lease enables you to have lower upfront costs and monthly payments, but you don't technically own the car and you'll have higher insurance premiums. Depending on the dealer and manufacturer, you might also run into mileage restrictions and other end-of-lease expenses.

On the other hand, a car loan will cost more upfront and have higher monthly payments, but you'll be able to land lower insurance premiums. You also won't have to worry about usage restrictions and you will be the sole proprietor of the vehicle.

The best time to buy?

According to Autotrader, the best times to buy a new vehicle is in the late summer or early fall. That's when new model-year vehicles become available at dealerships, prompting many sellers to slash prices on last year's models.

It can also be smart to wait until the end of the month, quarter or year to make a purchase, because that's when dealerships tend to be the most willing to negotiate as they try to hit their sales quota.