If you’re in the market for a new car, you might be overwhelmed with all the choices you’ll have to make. But buying a car with all the latest features may not be the best decision for all car-shoppers. Too often, people don’t have a realistic idea of what they can afford, and they become saddled with a car loan payment that’s hard to manage.
Before you even think about visiting your local dealer, figure out how much money you can put toward a car. The following tips may help you do that.
Determining your needs
The most important question is: Why do you need a new car? If you’re only considering the fun factor of a vehicle, you probably aren’t making a wise financial decision. Perhaps your work commute has increased, or your current vehicle is getting too old and unreliable. Maybe your family is growing and you need a larger vehicle. Whatever the reason, outline some practical reasons for needing a new car. If you can’t come up with any, consider that a red flag.
Once you’ve outlined your needs, you can begin looking for the right car. If you regularly drive long distances, consider fuel-efficient or hybrid vehicles. But keep in mind that you also have budget constraints that will limit your options.
Figuring your purchasing power
You probably have a monthly payment budget in mind, but a car’s costs can get a little more complicated than that. The base monthly payment is the product of several different factors, all of which can affect the type of car you can actually afford.
For example, if you have another car you plan on getting rid of, the trade-in value of that vehicle will count toward your next purchase as a down payment – once you’ve paid off the remaining balance on any existing car loans. This can be added to any cash you plan on using as a down payment. The interest rate you get on your auto loan, which is a product of your down payment and credit-worthiness, and the length of the loan will both affect your monthly payment amounts and the total amount you’ll pay for the vehicle. Based on the monthly payment amount you’re approved for, you’ll be approved for cars within a corresponding price range.
Other factors to consider
Repairs and maintenance can be a significant expense, and some vehicles will require more work over time than others. And every car will carry a different insurance cost based on the engine size, safety features and crash history of past owners of the vehicle. By choosing a safer, more conservative vehicle, you could cut down on overall insurance costs.
Everyone dreams of having a perfect car, but it’s not always a smart financial move to go out and get what you want without regard to cost. Cars should be practical, first and foremost. And always remember you don’t have to spend as much as you’re approved for – if you’re approved for a $40,000 vehicle but find everything you need in a $15,000 car, you can save that extra money for maintenance, repairs – and maybe a great sound system.