A new car is exciting. Whether you are finally trading in an old beater that you spend more on repairs than the car is worth or you’ve just driven it a while and want to trade for something different, it is important to know if you can handle the monthly expense before taking on this obligation.
Loosening Up Your Budget
The general rule of thumb is to have no more than 10 percent of your gross monthly income tied up in transportation costs. This includes not only your payment but insurance as well. if you are routinely making expensive repairs on your current vehicle, this may seem like an easy choice, but for a car that is still in good condition, you should take a hard look at your budget. If you are set on the idea of something new, but you are concerned about the added expense, consider ways to lower your monthly expenses. Many costs that you assumed were fixed may have some wiggle room. For example, you can consolidate your student loans with a private lender. By being able to stretch out your repayment term, you lower the amount of your monthly payment.
Have a Reasonable Down Payment
There is no avoiding the fact that vehicles depreciate quickly. You can minimize the impact of this loss by saving enough to put down at least 20 percent when making your purchase. By only financing 80 percent of the cost of the vehicle, you are less likely to end up in a scenario where you owe more money than it is worth. If you plan to trade in your existing vehicle as part of the deal, you may be unhappy with the value given to you by the dealer. Some people prefer to sell their vehicles privately to maximize the amount they receive. If you do plan to trade in your vehicle when making your purchase, it makes sense to have some additional funds set aside in savings to be sure you don’t have to finance over 80 percent of the car’s value.
Use a Short Financing Term
In recent years, auto loan terms have gotten longer as cars have gotten more luxurious. If you need to finance a vehicle longer than 60 months, consider a less expensive choice. Ideally, your warranty should still be good by pay off, but if that isn’t possible, you do want to own it outright before accumulating too much wear and tear. Paying for repairs while you are making payments is stressful and can quickly wreck your budget.
Consider Additional Costs When Choosing Your Car
Shopping should be fun, but consider the practical side as well when making choices. Some choices, such as a larger engine, can increase your insurance. This is a cost that you will face every month. Some costs aren’t as frequent but can create surprises. Often the higher-end model of a particular vehicle will have larger tires as part of the package. This can elevate the look and feel of the car, but can also add hundreds of dollars to the cost of new tires when it’s time for a replacement.