KSU professor offers advice on buying a car (WalletHub)
Don't be impulsive and don't overspend, cautions Dr. Lucy Ackert
KENNESAW, Ga. (Feb 15, 2017) — The auto industry enjoyed another record-breaking year in 2016, but dealers expect a drop in sales this year, perhaps boosting prospective car buyers’ negotiating power. In that case, you might be wondering whether now is a good time to buy.
Lucy Ackert, a professor of finance in Kennesaw State University's Coles College of Business, provided answers to important questions about buying a car.
What are the most common mistakes people make when buying a car?
I strongly recommend taking some time, upfront, to investigate the car desired. The Internet makes the process easy and efficient. A common mistake, particularly for younger buyers, is impatience. In all likelihood, the car will still be there tomorrow. There is no need to rush into a deal that is later regretted. Don't buy on impulse!
I also recommend that buyers check out online dealers like Carvana and True Car. I was very glad I did the last time I bought a car. As a woman, I am leery of being taken advantage of by a salesperson. I also do not enjoy haggling over the price. The upfront pricing gave me more confidence that I was getting a fair price.
In what circumstances is leasing a smarter option than buying?
It is in a buyer's long-run interest to hold a car as long as possible. In such case, buying is better than leasing because the finance charges are typically lower.
With that said, there are people who simply enjoy a nice, new car. While I do not recommend turning over cars quickly, I know that some people are willing to spend money for the experience. For those who are compelled to change cars often, leasing can be the better option. Depending on the terms of the contract, the monthly payment and down payment can be attractive. Beware, though, of penalties for ending the lease early or going over the contracted mileage.
Generally, what percentage of take-home pay should go to car payments?
Car payments should take a maximum of 10 percent of take-home pay. The average person has a lot to cover and must not forget to have a safety net of 3-6 months' saved in case of a possible interruption in employment. With a mortgage payment of a maximum of 25 percent of take-home pay, it would not be wise to spend too much on a car. These days people need to save for retirement and, if they have children, for college expenses. Plus, many are still paying off their own college loans.
A leader in innovative teaching and learning, Kennesaw State University offers more than 150 undergraduate, graduate and doctoral degrees to its more than 35,000 students. With 13 colleges on two metro Atlanta campuses, Kennesaw State is a member of the University System of Georgia and the third-largest university in the state. The university’s vibrant campus culture, diverse population, strong global ties and entrepreneurial spirit draw students from throughout the region and from 92 countries across the globe. Kennesaw State is a Carnegie-designated doctoral research institution (R2), placing it among an elite group of only 6 percent of U.S. colleges and universities with an R1 or R2 status, and one of the 50 largest public institutions in the country. For more information, visit kennesaw.edu.