Save for a Car

Being able to travel by car can help people earn more, spend less, and get better value in their housing. Cars, however, are relatively expensive to purchase and maintain. American households spend, on average, more than $8,000 dollars on car purchases and maintenance each year. Individuals can reduce this transportation expense by making wise purchase decisions.

Whether to Buy

Mass Transit/Rental Alternatives:

Before buying a car, especially a second vehicle, consider whether alternative transport makes sense. Particularly in cities, these alternatives could include mass transit, cabs, and rental cars, or a combination of the three. Most important, estimate the cost of a car and the cost of any alternative. Then ask yourself the question, is the convenience of car ownership worth the price?

Leasing Option:

If you decide you want to always have a car available, consider leasing as an alternative to ownership. One reason that so many cars are leased is that monthly lease payments are often lower than monthly car payments. But remember that, at the end of the lease period, you won't own the car. And buying it at the end of a lease may cost you more in total than purchasing it at the outset.

What to Buy

Cars vary widely in cost. Annual household spending on automotive transportation ranges from hundreds of dollars to tens of thousands of dollars. The exact cost to you depends on factors such the type of car: its age, mileage, and condition; how you finance, insure, and service it; and how many cars you own and how far you drive them.

Which Car Model:

First, think about the types of models that meet your transportation needs and are affordable. Then search the internet and objective publications, such as Consumer Reports and Kelley Blue Book, for information about the features, performance, durability, and costs of the models which interest you. Finally, look over and test drive any of these models.

New or Used:

In deciding whether to purchase a new or used car, make certain to estimate the difference in total costs, not just purchase price, but also depreciation, gas mileage, insurance premiums, finance charges, and likely costs of maintenance and repair. Remember, new cars almost always are more reliable and have superior warranties to used cars but lose 20 to 40 percent of their value when driven off the lot.

How to Buy

New Cars:

At car dealers, the price of the cars and their optional features are almost always negotiable. In fact, most buyers do not pay the manufacturer's suggested list price (or sticker price). Here's how to get the best price:

• Before negotiating, learn the manufacturer's wholesale price to the dealer, which will be somewhat less than the sticker price. This wholesale price can be found on the internet or purchased from services such as Consumer Reports.

• Negotiate price over the phone with several dealers. Because it is easier for you to end a phone conversation than walk out of a dealership, you are likely to get a better price. If the dealer won't talk price with you over the phone, call another dealer.

• If reluctant to negotiate, consider seeking assistance from a car buying service. One nonprofit consumer group maintains a popular service, CarBargains, in which several dealers bid for your sale.

Used Cars:

Purchasing a used car is risky in that you often cannot be certain of the condition of the car. Here's a purchase strategy:

• Check the Bluebook price to learn what used cars in a certain condition usually sell for. Bluebook prices can usually be found in a library reference book or on the internet.

• Keep in mind that there are few effective used car warranties. Most cars are sold "as is," and most of the rest carry a 50-50 warranty that obligates you to pay a portion of the repair costs.

• Try to find a mechanic who is willing to check the car before you purchase it. And see if the seller will make the sale conditional on the car passing inspection.

• Consider purchasing from family or friends who are more likely than dealers to tell you what they know about the condition of the car and not overcharge you.