Cars sit in a lot for purchase.

Four Steps to Buying a Car as a Service Member

Buying a car is a major purchase. There’s a lot to know – from sticker prices to auto loans to warranties. Avoid getting ripped off or buying more car than you need. Do your homework ahead of time, get advice from someone you trust in your command, stay clear of scammers who often set up shop right off the installation and follow these steps.

1. Consider how a car fits into your military life

Think about how owning a car fits into your military life. That brand-new car with all the bells and whistles may look good, but remember the moment you drive off the dealer’s lot, it will depreciate in value. New cars lose value faster than used cars, as this blog post explains.

Your answers to these questions can help you figure out the type of car that best meets your needs.

  • Will you be using the car for fun, errands, to get back and forth to work, or to visit family?
  • What will you do with your car while you are deployed?
  • Would you be comfortable putting your vehicle into storage when you PCS to a place where you can’t take the car?
  • If you can take your car to your next assignment, what type of vehicle would be good for your new location?
  • Could you get by with ride-sharing or even a bike?

Free Financial Help Available

Whether you’re buying a car, a home or balancing your budget, Military OneSource offers free financial counseling to help you make smart money choices.

2. Figure out your budget

The next step in car shopping is to calculate what you can afford to spend. Use online car buying resources and Consumer Reports available through the Military OneSource MWR Digital Library to find out pricing and the reliability of vehicles you’re considering. Then use Military OneSource’s Member Connect Support Services’ car payment calculator to figure out ahead of time a monthly car payment you can afford and that also makes sense given your current and future financial situation.

Also consider extra monthly and annual expenses that go with owning a car – such as state vehicle property taxes, registration, insurance and maintenance – when figuring out your budget. It is also important to understand the gas mileage for your potential new vehicle and factor that into your monthly expenses.

Calculate your spending power on your base pay. Don’t include any extra allowances or pay that you might be receiving right now. You don’t want to build your budget around that special pay, because your car payment will still be around after that special pay ends.

Consider contacting a Military OneSource financial counselor or visiting a personal financial manager at your military installation to ask questions and get information on figuring out a budget, financing options and the car-buying process itself.

3. Focus on the financing

Many car buyers use an auto loan to pay for some of the costs of the vehicle. A loan can be a great tool to help you buy a car, but be smart in your borrowing. Making a few wrong decisions in the finance office could end up costing you. Understand the total cost of your purchase, how much you are financing and how much interest you will pay over the life of the loan.

The Military Lending Act offers protections to service members, including limiting the amount a creditor may charge. But military members still need to be extra careful because they are often sold overpriced vehicles with overpriced financing. Check out your installation’s website to see if it posts off-limits establishments to help you stay clear of local predatory lenders or car dealers.

These factors play into your loan terms and what you’ll pay:

  • Your credit score: Prepare now by checking your credit report. You may find errors to address or you may want to take steps to improve a low score. Military OneSource free financial counselors or your personal financial manager at your installation’s Military and Family Support Center can help with suggestions.
  • Interest rates: Learn a bit about current market rates for auto loans. Keep in mind that your rate will be based, in part, on your credit history, so a first-time buyer may not be eligible for the best possible rates. Check with your bank or credit union to see what they can offer to you.
  • Down payment: Larger down payments mean lower monthly costs and/or shorter loan terms, which puts more money in your pocket in the long run.
  • Focus on the total cost: Your monthly payment is an important part of the equation, but the most important part is the actual cost of the car. A creative financing person can always manipulate a loan to get the monthly payment down to a certain number, usually by giving you a longer loan.
  • Length of the loan: Longer loans mean more money paid in interest, as this infographic shows. More importantly, longer loans also mean a longer time that the balance on the loan will be higher than the value of the car, which is also called negative equity, being “upside-down,” or being “underwater.”
  • Location restrictions: Will your lender permit you to take the vehicle out of the state or country if you get overseas orders? To ship a vehicle, you’ll need written permission from the lienholder. Make sure your loan doesn’t prohibit you from moving the car across the country or world.

Planning for the financial aspects first ensures that you’ll end up with a car you can afford. It’s essential that you don’t get overextended, because money troubles may derail your military career.

4. Car shopping

Once you know what you can afford, research vehicles online to determine which ones best meet your needs as well as your budget. With information in hand, visit several sellers and test drive several different vehicles before you make a final choice. Remember, a used car is a good – and less costly – choice in most situations. A new car can quickly lose its flash and value.

Consider taking a level-headed friend with you or ask someone in your command to help you with this big purchase. It’s a lot easier to say “no” when you’re not alone. Give yourself plenty of time to make your car-purchasing decision. Don’t feel pressured by your situation or the car seller to make a snap decision that you might regret later.

Once you’ve found the right car, there are just a few more things to finalize. Remember: understanding all the costs involved in owning a car and avoiding dealer add-ons can help you buy a vehicle that keeps you in your budget.

Finish the paperwork: You’ll likely spend some time with the seller finishing the paperwork for your car purchase. If you’re buying through a dealership, be aware that they may try to sell you add-ons like extended warranties. Don’t buy anything that you hadn’t already factored into your budget. Consider taking the loan and sales contract to your legal services office for a review. Don’t sign a contract unless you are absolutely sure that you understand all the terms.

Register your car in your state of legal residence: It may be easier to register your new car where you buy it, but there are good reasons to register it in your state of legal residence. Most states will permit active-duty military to register their cars by mail.

Get the right insurance: Get your new car covered by insurance immediately. Consider comparison shopping between a few insurance companies to see if one has better rates for the same coverage. Be sure that your insurance company understands that the car is registered in your state of legal residence but generally needs to be insured where it is kept. Check with your insurer to make sure you have the right coverage.

Buying the right car for your needs and your budget can help make car ownership a positive experience. Doing your homework and shopping smart is the best way to make the right choice for your military lifestyle.

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