What is the best way to buy a car?

Dear Driving for Dollars,
I'm planning to purchase a new car soon. I'll be retiring in about eight months. There are several ways I could finance the car purchase: I can pay cash either from my savings or from CDs that will be maturing. Or, I can finance the purchase through a low-interest car loan either from the car manufacturer or through my state pension. What's the best financial decision?
-- Joanne Soon-to-be-Retired

Dear Joanne,
It's always a better financial decision to pay cash for a car versus financing it if you can afford it. Even at a low interest rate, you'll be paying more for the car than it is worth and will automatically be upside down in your car loan, at least for a short time. If you have the cash and still have enough in savings to cover unexpected expenses in a rainy-day fund, then your best bet is to use the savings instead of cashing in your CDs at maturity -- if the interest rate on the CDs is higher than the interest rate you are earning in your savings account.

Regardless of how you decide to buy a new car, make sure you negotiate the purchase price separately from your trade-in. Also, do some advance research at an independent, car-pricing website to determine what you should pay for your new car and the value of your old one.

Ask the adviser

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

 Create a news alert for "auto"