Four Financial Considerations When Purchasing a Vehicle

From a financial perspective, vehicles are necessary evils. It is a large cash outlay for a depreciable asset, but there are a few things you can do to minimize the damage on the net worth.

1. Financing

In today’s relatively low interest rate environment, most vehicles can be financed at 3% or less. Since inflation is usually at 3% or higher, this is a good value of money as it allows you not to miss out on the opportunity cost of use for your current lump sum of capital that you would otherwise use to purchase a vehicle outright.

2. Buy slightly used

Much of a vehicle’s depreciation occurs when you drive it off the lot. A vehicle that is one to three years old is a much better value. Even cars that are only one year old can be 20% to 30% off the new car price. (This will also likely save you money on car insurance.)

3. Determine fair market value

There are several universal tools out there that help you price out the vehicle based on make, model, miles, features and other important details. A common and reliable benchmark is Kelley Blue Book.

4. Negotiate

There is a lot of wiggle room in used car values based on so many variables — time of year, inventory, sales tactics, etc. Most of a car dealer’s profit, I’ve been told, is from the profit margin in the used car sector of the business.

Jon C. Ylinen is a Financial Advisor with North Star Resource Group and offers securities and investment advisory services through CRI Securities, LLC. and Securian Financial Services, Inc., Members FINRA/SIPC. CRI Securities, LLC. is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource Group is not affiliated with Securian Financial Services, Inc. Please consult a financial professional for specific advice in relation to your individual circumstances. This should not be considered as tax, specific loan repayment for an individual or legal advice. 794219/ DOFU 01-2014.