Budgeting for any large purchase requires a lot of forethought. But how can you specifically budget for a new car and get the best bang for your buck?
How much can you spend?
First, you’ll need to figure out how much you can realistically spend. If you’re thinking of budgeting for a new car, then you likely already have a few makes and models in mind. If not, you’ll need to ask yourself whether you can afford new or just new to you. Anyone truly sensible with their financing will always recommend to buy a second hand car, considering the huge depreciation new cars go through as soon as you drive them out of the lot. Read on to find out how to successfully budget for either a used or a new vehicle.
Don’t buy more car than you can afford
Don’t purchase more car than you can realistically afford. While the best case scenario would be to save up enough money to buy a used car outright, understandably this can’t always be the case. If you absolutely need to get a loan to finance your new car, then most experts recommend that your monthly car payment be no more than 15% of your gross pay (we recommend aiming for less). Your down payment should be at least 20% of the purchase price (we recommend aiming for more) and that the maximum term of the car loan should be 48 months (we recommend aiming for a lot less).
Understand the true cost of the car
While you’re budgeting you need to really consider the total and true cost of the new car. The total cost of course is a lot more than just the sticker price. It will include sales tax, title and registration and optional items like extended warranties. You’ll also need to factor in maintenance and repair costs of the vehicle when you’re budgeting. If there’s not enough wiggle room in your budget to spend on repairs, then don’t buy a new car until there is. Likewise, it’s absolutely essential that you factor in maintenance costs otherwise you’re more likely to face heavier repair costs down the track.
Sell your old car
If this isn’t your first car, then you likely already have a vehicle that you can trade in or resell. We always recommend reselling in the private market as you’re likely to get a much better deal than if you choose to trade in your old car at the dealers. However, if you’re buying from a dealership make sure you get a quote as it can potentially give you more pull when attempting car negotiations. That being said, you’re likely to still get a fairer price if you can sell privately, though this does mean a little more work on your part.
If you’re unsure about buying a used car, then it can be a good idea to opt for a vehicle inspection. While it may cost you a few extra hundred dollars, it can be worthwhile to uncover any potential problems that can be more expensive to fix later on. Also, always make sure you take any car for a test drive before buying to see if you can spot any issues and thus lower the price. Take your time when buying, don’t rush in to any deals and don’t feel pressured to buy from salespeople. Go in with your eyes open and get the best deal you can.