5 tips for when you’re planning a major purchase

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When it comes to making a major purchase – something big, like a car or house down payment – it can seem overwhelming, particularly when you consider that the purchase might still be several years away.

But you can make it easier on yourself by getting a plan ready now.

Here are a few ways to make your journey smoother:

  • Start saving now
    Any money you can start putting away will only serve you well in the future. If your major purchase is going to involve taking on some debt — like a car loan, for example – you can reduce how much credit you’ll have to ask for by being able to put more money up front. That might also improve your chances of getting a loan approved.

    And saving is never a bad idea – even if you’re not in the market for a major purchase. If it’s easier, try creating a “Major Purchase” savings sub-account that you can set aside savings until you have a specific target in mind.

  • Pay down your debt balances
    A big part of getting approved for a car loan or mortgage is showing lenders that you’re a safe bet with a high credit score.

    One of the best ways to raise your credit score is by having a low amount of outstanding debt relative to how much total credit you’re allowed. Lenders look at this “credit utilization ratio” to determine how stretched you might be to pay off all of your debts on time. It makes sense on your end, too. The last thing you need when you’ve taken on a new debt is to try paying off old debts with higher monthly finance charges.

    Don’t know your credit score? Find out for free by signing up for our Free Credit Monitoring service.

  • Prioritize your purchases
    It would be much simpler if all financial decisions were “either/or” propositions, but real life rarely happens in such an orderly fashion. For many of us, we need to plan for major purchases that either overlap or happen close together in time.

    That means prioritizing which goal comes first, and which ones might need to come later. As much as you may want a new car, maybe saving for a house down payment needs to take priority. (This also serves as another reminder for early saving and debt reduction so that you might have the ability to tackle multiple major purchases at the same time).

  • Comparison shop for the best price
    In a best-case scenario, before an actual purchase happens you’ll first do some research to make sure you’ve found the best deals you can. Fortunately, the internet has made comparison buying easier today than ever. For example, many car-buying sites like Edmunds.com or kbb.com will aggregate vehicles for sale in a certain geographic location, saving you a lot of the legwork about average prices in your area.

    Similarly, consider whether you have flexibility to choose different locations for home-buying – or even whether buying makes sense compared to how much renting a home costs in your area. Try Trulia’s Rent or Buy? calculator to see what option makes more sense in your situation.

  • Comparison shop for the best financing options
    Just like you’d shop for the best deal on your purchase, that same attention should be paid to how you pay for it. Remember: the idea is to spend the least total amount of money you can.

    Here, too, the internet can be used to shop for lenders that offer the best rates on loans. This might be your bank, but it might be a competitor or even an alternative lender like an online bank or credit union.

    Just make sure you calculate your total purchase price throughout the loan term. Having a good credit score will give you more leverage and choices. If you’re in the market for an car, think about whether buying actually makes sense. In some cases (like if you’re a city dweller who racks up little mileage), a lease or even a car sharing service like Zipcar or Getaround may be a better option.

Whatever you do when it comes to a major purchase, the key is to plan for it as far in advance as possible. That way you can start saving early, make sure your credit score is good (if you need to take out a loan for your purchase), and do research to find the best deals and financing options available.

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