Budgeting for a car should be the first step in preparation for buying a car. It 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. This is where budgeting for a car comes into play.
Often a lot of emphases 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.
Budgeting for a Car
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. Budget for the absolute maximum you can afford, this way you know with certainty your affordability.
Making a down payment towards your car purchase will have an impact on your monthly payments. The higher the down payment, the 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.
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 are 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.
Don’t fit your budget around your car payments, your car payments should reflect what you can afford.