Buying a car is a big decision that requires careful financial planning. For most people buying a car is not a frequent event, it probably happens every few years.
Research is the key to buying a car. There is an endless supply of cars and finding the right can be daunting but we mostly know what kind of car we are looking for. The only hurdle is the cost of buying a car. You are most likely to buy a car on finance and financing comes at a cost. Whenever you take out a loan, you will have to make regular payments to service that loan. The rate of interest you get is important as your regular payments will include principal and interest. So, before you walk into a dealership, find out what you can afford. Look at your budget and decide the maximum monthly payment you can make for a car loan.
Often a lot of effort is placed on getting approved for a car loan. It is not difficult to get approved for a car loan, the difficulty lies in servicing the loan. Just because you have been approved for a car loan does not mean that you can afford it.
The amount you can afford is not necessarily in sync with the loan you can get.
When budgeting for a car remember that the advertised price is never the purchase price if you are buying from a dealer, there are always add-ons. So when you’re working on your budget to determine the amount you can afford, I would recommend adding an extra on the sticker price. You should budget for the absolute maximum you can afford, this way you know with certainty your affordability.
2. Down Payment
Making a down payment towards your car purchase will have an impact on your monthly payments. The higher the down payment, lower the monthly payments will be.
Down payment will reduce the amount of loan you need which will reduce the total interest over the term of the loan. Deciding on what should be your down payment is dependent on how much you can afford to pay out of your savings.
3. Trade-In Value
When budgeting for a car, don’t forget to include the trade-in value of your current car. Your car probably has some trade-in value and it should be included in your budget. Trading in your old car can help reduce the total purchase price of your new car.
4. Miscellaneous Costs
When budgeting for a car it is easy to make the mistake of just budgeting for monthly loan payments. Loan payments are just one aspect of owning a car. There is a whole host of other costs that need to be considered, such as insurance, maintenance, and gas. You have to be certain that you can cover these costs.
Budgeting for a car is a vital exercise if you are thinking about buying one. Don’t fit your budget around your car payments, your car payments should reflect what you can afford.