Questions to ask before buying your next vehicle

Before you get started on obtaining your next car or truck, make sure you can answer these questions:

New or used?

Everyone likes that new car smell, but it comes with a big cost. As soon as you drive off the lot, your vehicle could lose 10% of its value. After just a year, it may be worth 20% less than you paid.

Buying a used car can save a lot of money. But it takes extra work to make sure you're not getting a lemon. It's a good idea to have a trusted mechanic perform an inspection before you agree to buy. You may also feel more confident buying a "certified preowned" vehicle with a warranty.

Buy or lease?

One of the first questions you may look to answer with your new car search is whether you should buy or lease. If you plan to keep your next car for several years, you're better off buying it. However, if you swap vehicles every two or three years, leasing may be a reasonable choice.

Long-term ownership tends to cost less over time. After you pay off your car, you can enjoy having extra cash when that payment vanishes.

There are some advantages to leasing. The up-front cost is lower, many leases cover oil changes and other basic upkeep, and you won't have to sell it when you're done.

What's your budget?

Buying a car can be an emotional experience. To avoid getting carried away, give yourself a firm spending limit before taking that first test drive.

You may need help to determine what payment options fit within your budget. Compare different options with USAA's auto affordability calculator.

It is typically best to keep the loan term as short as possible to avoid paying more in interest or risk being "upside down". A shorter term means you own the vehicle and its full worth sooner than with a longer term. Longer term loans have a lower monthly payment although you will pay more for the car and loan compared to a shorter term. You'll need to balance between your vehicle needs and your budget.

What's the total cost of ownership?

Beyond the negotiated price, state taxes and fees, you should consider the real cost of your new car. Four other key expenses that you need to budget for are:

• Gas. When selecting a car, pay attention to how far it will take you on a gallon. If gas prices are low when you're shopping, keep in mind they could jump at any time.
• Registration. In addition to sales taxes, your state also charges a registration fee. It differs from state to state.
• Insurance. The cost of insurance protection differs depending on the vehicle. Get quotes on the different models you have in mind before buying. You have some control over the premium through your choice of deductible and any options you elect, like a safe driving program.
• Maintenance. Consider a vehicle's reputation for reliability and repair costs.

What's your credit score?

If you're going to borrow to buy your next vehicle, check your credit score before the lender does. A higher score may mean a lower interest rate and monthly payment. A score of 720 or better may qualify you for a lender's best rate.

It's also a good idea to get a copy of your credit report. There are three major credit reporting agencies: Equifax®, Experian® and TransUnion®. You're entitled to one free copy of your credit report from each agency once per year. Get your reports at annualcreditreport.com Opens in a New Window.‍ ‍ ^{See note 1} Review them for errors and unpaid balances.

What is APR?

It stands for "annual percentage rate,” and is the interest rate for a whole year. Knowing your APR will help you make reasonable comparisons of the financing costs when you're looking at car loans.

Which dealers deserve your business?

Ask friends, coworkers and family members about their experiences with local car dealers. Look online for ratings and reviews. Don't be afraid to visit multiple dealers and get a feel for them. Some dealerships may be more motivated to make a favorable deal depending on the time you are shopping.

What are the three prices of a new car?

• Invoice price: It's about what the dealer paid to the manufacturer.
• Sticker price: It's more formally known as the manufacturer's suggested retail price (MSRP). The dealer wants you to think it's the starting point for negotiation.
• Market value: It's what you should reasonably expect to pay for the car. Typically, the market value is a range. It's based on other transactions in your area for that specific make and model.

Are manufacturer incentives available?

These are deal sweeteners designed to entice you to buy. For example, a manufacturer incentive may offer $3,000 off MSRP if you buy before a certain date.

Sometimes these incentives are available straight from the manufacturer. Other times, you can qualify for them through your relationship with certain businesses. You may even be able to combine both types, and it's important to know the difference between them.

Do you qualify for special military deals?

Some manufacturers and dealers provide discounts created just for military service members.

If you have a service-related disability, you may qualify for financial assistance to buy a vehicle specially equipped for your needs Opens in a New Window.‍ ‍ ^{See note 1}

The Office of Servicemember Affairs at the Consumer Financial Protection Bureau provides educational resources to military families about vehicle purchases and other financial decisions.