[Visual title: Getting a car after the military]

Getting a car could be your first big financial goal after you leave the military.

In this video, we’ll take a look at the process of buying a car

[Visual of a man weighing his choice between a new and used car]

and highlight some specific considerations for military veterans –

[Visual of a salesman pointing to a sign that reads: “Great deals for vets!”]

and when to look out for some common scams.

[Visual of a title: How much can you afford?]

If you’d like a benchmark for what you can afford to spend on a car, a good target is to spend less than 16% of your yearly gross income (that is, income before taxes) on your total annual transportation costs. That’s not just auto payments – that includes everything: insurance, registration, gas, maintenance, repairs…everything.

To get an idea of the total cost of the car you want,

[Visual of different car choices: Regular cab pickup NEW for $22,500; Regular cab pickup USED for $20,250; Crew cab pickup USED for $19,225, Extended cab pickup USED, $23, 600]

research different prices for the car and the going rate for similar vehicles. Whether you’re looking at new or used cars, the more you know up front, the better prepared you will be to negotiate the deal.

What vehicle you choose to get will ultimately depend on your own needs and circumstances. And you may not have enough saved to cover the cost of the car up front. If you want a vehicle that costs more than you have,

[Visual of an example loan contract: A total of $28,500 with $375 monthly payments at 3.00% for 84 months]

just consider the total cost of the vehicle, and the terms of the loan you’re offered, before you sign the papers. The less money you have tied up in making car payments,

[Visual of a stack of cash being divided into a piggy bank, groceries, health services, education, auto and home costs]

the easier it will be to handle other expenses. Now, leasing might be another option, but for now, we’re just going to focus on financing or purchasing a car.

If someone offers you a deal that sounds too good to be true – it might be.

[Visual of the salesman offering special pricing for vets. We see he has a 1 star user rating online, a thumb down and bad ratings across his service offerings: Selection: 3/10; Service: 1/10; Website 2/10]

It’s healthy to maintain a certain degree of skepticism and do your due diligence in researching anyone who might be selling you a car.

[Visual of a title: Financing your purchase]

If you’re not buying your vehicle outright, you’ll likely need an auto loan, which you’ll repay in monthly installments, that will include payments toward your principal and interest charged on the loan.

[Visual of an example loan: $515/mo. for 60 months]

If your budget is limited, one option is to lower your monthly payments, but extend the term of the loan –

[Visual of an example loan: $375/mo. for 84 months]

that is, the length of time you’ll have to pay back the loan. But opting for a car that’s in your price range might be a better option. While extending the term might make your loan easier to pay month to month, it could cost you more in the long run, because you could end up paying more in interest.

Here’s how auto loans work:

A typical auto loan has a term of about five years, or 60 months – that’s the length of time you have to pay off the loan.

So let’s say you’re buying a car for $15,000, and you’re offered one auto loan at 4% interest and one at 6% interest. Now, obviously, if all other things are equal, the 6% loan is going to cost more, but how much more might that extra 2% cost you?

[Visual of two loans, both for $15k over 5 years, but one at 4.00% interest and the other at 6.00% interest. We see the 4.00% loan will accrue $1,574.87 interest over time, and the 6.00% loan will accrue $2,399.52 interest over time, or a difference of $824.65]

Well, in this situation, if you take the full five years to pay back the loan – you’ll pay about $825 more on the 6% loan.

[Visual of two loans, both for 5 years at 6.00% interest, but one for $15k and the other for $25k. We see the $15k loan will accrue $2,399.25 interest over time, and the $25k loan will accrue $3,999.20 interest over time, or a difference of $1,599.95]

Likewise, with all other things being equal – in this case, if the interest rate and term are the same – the more money you borrow, the more you will likely pay in interest over the life of the loan.

[Visual of two loans, both for $25k at 6.00% interest, but one for 5 years and the other for 7. We see the 5y loan will accrue $3,999.20 interest over time, and the 7y loan will accrue $4,831.20 interest over time, or a difference of $832.00]

Similarly, the longer you take to pay back the loan, the more you’ll pay in interest as well.

So you’ll end up paying less in interest the less you borrow, the faster you pay off the loan, and the lower your interest rate is.

So it can be worth it to shop around for the lowest interest rate you can find – and put as much money down on the car upfront as you can comfortably afford.

Unfortunately, there are a lot of scams designed to target active duty service members and veterans. If a lender offers you a loan with no down payment and without checking your credit score – beware. Chances are the loan may contain high hidden fees.

[Visual of a title: Know your credit score]

The interest rate you’re offered on a loan will depend on a lot of different factors, but one of the most important is your credit score. A high credit score is the best way to get a lower interest rate loan.

While you can get a free copy of your credit report once a year, you might have to pay to get your credit score.

You can get your credit score for a fee from any of the three major credit reporting agencies: Experian, TransUnion and Equifax.

If you don’t have a good credit score right now, and you don’t need a car right away, it could be worth holding off on your purchase so you can improve your score. You can do this by paying off old debts, and by making regular, on-time payments on your bills.

[Visual of a title: Refinancing a car you own]

If you’ve already purchased a car, and have a loan with a high interest rate, you might consider refinancing your existing loan. If your credit score has improved since you bought your car, or if you received a high interest rate initially, you may be able to talk to different lenders about getting a new loan with better terms.
 
When you’re looking for a car, you’ll likely find unique deals, discounts and special loans for active and former service members but remember to be skeptical.

Understanding up front what you can afford, and how much the car you choose will cost you in the long run, can help you save money and keep your budget on track.


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