Before you make a major purchase for a car, home or other item, there are 4 things you should do to make sure you’re prepared mentally and financially. Making big purchases requires more than just the willingness to take on payments, it also requires advanced planning and a little bit of leg work on the buyer’s end in order to get the best deal.
Read on to learn 4 things you should do before making a major purchase.
1. Check your credit score
Most major purchases aren’t paid for in cash. Odds are you’re going to get a loan or make payments on the item you’re looking at buying. In the case of a car, those payments will last 5 or 6 years. A house will run you 15 or 30 years. It’s worth checking your credit and making sure it’s in tip-top shape before you apply to minimize the chances of being rejected or getting an unfavorable term.
You can check your credit score at a free credit reporting site up to one time a year. Some credit cards also offer free credit monitoring to help you keep an eye on your scores. Either way, be an informed consumer and know your score before the salesman tells you what it is.
2. Save up a down payment
This seems like a no-brainer, but saving up a down payment is a must for any major purchase. The down payment not only reduces the total you must pay, but in some cases a larger down payment means a smaller interest rate. For a purchase like a house, you should start saving a year or more in advance to ensure you have enough to complete the purchase. Many lenders require 10 or 20 percent of the total to make the deal.
Sometimes your trade-in will act as your down payment. For example, if your car is worth more than you owe, the difference would become your downpayment. You can check the value online before going in to the dealer for an idea of what your car is worth. For homes, if you sell your old home before purchasing the new one, the profit made off the sale of your old home will act as your downpayment. In the current economy, that’s less and less likely to be true though, so you may need to bring additional funds to the table.
3. Check the current interest rates
Never go into a major purchase without doing your homework. It’s fine and dandy to trust your salesman, but you should really know what the current rates are. That way, if you get hit with a higher than average rate, you can pursue your own financing options to try and get a better deal. The interest on a loan forms a large portion of the payment at first, so getting the best rate possible is important.
4. Get a good night’s rest
Whenever you need to make a major purchase you should also go into it well rested. Never make the purchase the day you decide to browse, instead sleep on it and see if it still seems like a good idea in the morning. Often times, additional questions or concerns arrive in your sleep and it’s good to get those questions answered before continuing.
Doing these 4 things before making a major purchase will help keep you from making a financial mistake. Whenever spending a large amount of money, always keep cool and do your research to avoid winding up on the wrong end of a bad deal.