So, you’re thinking about purchasing a new car. Pull out your phone and open the calculator app. We’ve got some numbers to crunch! A car purchase usually isn’t something most of us make on a regular basis, so knowing where to begin can be overwhelming. Here’s the best way to start in 4 easy steps:
- Start with current debt and expenses. You will want a line item list of every weekly, monthly and yearly expense. Determine your debt to income ratio by factoring in what you bring home versus gross pay.
- Determine how much you can/want to spend. Just because you can afford a big luxury vehicle doesn’t mean you have to. Start by listing out your car needs vs. wants to determine how much you’re willing to spend on your next vehicle. Here are some costs to consider:
• Start-up costs: Before you even drive the car off the lot, you’ll want to factor in the down payment, your trade-in, taxes, state fees, dealership documentation and other miscellaneous dealership fees.
• Recurring costs: These are costs that are paid monthly or yearly during the life of your vehicle such as: car insurance, monthly payments, maintenance, fuel, registration and taxes.
• Miscellaneous additional costs: Consider things like custom upgrades or parking fees in this category.
- How will you pay? Do you want to pay with cash in hand or take out an auto loan? Will you have enough saved to make a sizable down payment? All of these are factors to consider when considering the actual car buying process. A great rule of thumb is to not exceed 15 percent of your monthly income with car expenses.
- Borrow less than you can afford! If you’ve made it to step 4 and have decided an auto loan is a good decision for you, borrow less than you can afford. If you can put 20 percent as a down payment, great. If you can’t, any down payment is better than none at all, because it shows good faith to your lender, and you own more of the car out of the lot. Budgeting for less than you could afford will aid you in making your payments, ensuring they are on time, and could help protect your credit.
Purchasing a vehicle can be difficult and it’s often hard to know where to start! Begin with these four easy steps and you will feel confident as you start your search.