Things to Consider when Purchasing a Car

By Janel Rodriguez

If you’re looking to buy a car, it can be a convenience or a headache.  Whether you’re looking to buy your first vehicle or your fifth, there are several things to consider before signing on the dotted line. Buying a car is a significant purchase and having a clear understanding of what you want and need in a vehicle will help you to get the best value for your money.  Here are some factors that should influence your decision. 

1. New vs. Used

One of the first key factors to consider is whether you want a new or used car.  When weighing these options, consider the condition of the car.  A new car will be in perfect condition so you don’t have to be concerned about repairs for a while and it won’t need as much maintenance as a used car. You know for sure that the car has never been in an accident or had any mechanical issues which can provide peace of mind on the road that is absolutely priceless.  

A new car also comes with an untouched factory warranty for a predetermined number of miles. Manufacturer’s warranty on a  new car will likely be the most comprehensive warranty coverage your vehicle could ever have. Right now, both banks and car dealers are offering huge deals on new cars since sales were down last year as people deferred buying because of COVID.  Right now, Hyundai Jamaica has a promotion for a five year warranty on new Hyundai vehicles.  They’re also offering 10 years free servicing which can save you a lot of money overtime. Servicing can be expensive, especially as your car gets older!

Depreciation

Another thing to consider, however, is depreciation. That new car will start to lose value the moment it leaves the lot so the sum that you paid may be worth significantly less in a few years if you are ready to sell it.  After all, it won’t be brand new anymore. According to nerdwallet.com, a new car depreciates around 20 to 30 percent in the first year. But from years two to six, depreciation slows down to about 15 to 18 percent. They got this data from Black Book, which tracks used car pricing. They say that as a rule of thumb, cars will lose about 60% of their initial value in five years.

Using those formulas, let’s work out an example. Let’s say you buy a new car for US$40,000.  Three years later, it would be worth around $22,000. The car has cost you $18,000 in depreciation. Now let’s say you buy the same car, but it’s already three years old when you buy it. You could buy the car for $22,000 in good condition, and the mileage may still be fairly low. Three years later you could sell it for $15,000. The used car depreciation would have only cost you $7,000.  Used cars can be reliable.  Just that you have to take the extra steps to make sure there’s no hidden damage. Additionally, used cars can be cheaper to insure because they’re worth less. However, new cars come with more financing options, less maintenance initially, and of course more prestige. So you have to weigh your options and what’s important to you. 

2. Price and Financing. 

When looking into buying any vehicle, new or used, do your research.  Compare the pricing of the vehicles you are interested in at multiple dealerships to ensure that you are being offered a fair deal. Once you’re comfortable with the price, make sure you’ve considered the cost to finance the vehicle. Find out what financing is available from your financial institution. It’s always a good idea to speak to your financial institution before visiting a dealership.  This will allow you to stay on budget when car shopping. 

Interest rates

Interest rates on car loans in Jamaica right now are generally around 7%. The interest rate on car loans varies based on the institution you’re borrowing from so it is important to compare lenders before settling on a loan offer.  Just like the price of the vehicle, interest rates are actually negotiable. The first rate that you are offered may not be the lowest rate you qualify for. Research the interest rates offered by various lenders and use that as a bargaining point. You can tell your lender, well, your competition is offering a lower interest rate. If you match that rate, I’ll stick with you.  Also try to make a bigger down payment than required, or opt for a shorter repayment term.  These are all factors that can reduce the interest rate that you will pay. 

Foreign exchange rate

It is also important that you consider the foreign exchange rate that the vehicle is being sold to you for. If you’re purchasing a new, or newly imported car ASK what the prices are being based on. There is a significant difference between the price of a car being sold at an exchange rate of JMD$150 to US$1.00 versus one being sold at the rate of JMD$170 to USD$1.00. Car dealers, and generally all importers, tend to forecast the foreign exchange rate that the item is likely to be imported at; however, their forecast can sometimes be off.  The difference can be thousands of dollars. It’s better not to buy a car when the dollar value is low so that you may get the most for your money. You can save money by knowing what the exchange rate is and using that to negotiate with your dealer. 

Cost of ownership

Next, consider how much it will cost you to own this car. What if you want a luxury car like a Benz or a BMW? You’ll spend money to buy the car, but how much will you be spending to maintain the car? How much will your insurance cost? How much will the car parts cost you? Luxury cars tend to have much more expensive parts with much more costly repairs. In addition, how much will gas cost you? Is it fuel efficient? The money you spend when buying the car will not be the end of the costs. These are things that should be taken into consideration so that the car doesn’t end up being more of a headache than a convenience. 

3. Features and technology

Lastly, consider what Features and technology you want in your vehicle. You want value for your money but you also want comfort and satisfaction right? Write a list of the features that you are looking for and refer to them when car shopping. These features may include: Self-parking technology, automatic headlights, keyless entry, bluetooth connectivity, and reverse camera, just to list a few. It’s important to shop for what’s important to you and find the car and features that suit your wants, needs, and budget.

By keeping these factors in mind when purchasing a car, you can make a more informed decision and ultimately get value for your money.