Buying a car and paying for all the additional services, such as car insurance, can be pretty expensive. Globally, the expectation is to see a sale of more than 78 million cars by the end of 2017, which would mean a rise of around 7 million compared to 2014. However, a worrying statistic shows that around 13% of all drivers are uninsured. While it’s natural to want to save as much money as possible, especially to avoid financial trouble, it’s also necessary to cover all the essential expenses, such as insurance. By knowing what your budget is and having realistic expectations, you will avoid excessive debt.
Start By Calculating Income and Expenses
If you already have a personal or home budget and use it daily, you have already completed this step. Otherwise, consider setting up a personal budgeting system for all future expenses, not just your car, as this can be very beneficial and give you incredibly useful insights on your spending habits. There are plenty of excellent apps that can help you achieve this easily.
Calculate how much your income is (after taxes) and what your fixed and variable expenses are. Consider what you would be willing to sacrifice to pay for a new car and how much in general you want to spend on it. Always consider all your priorities and be sure to account for unexpected expenses down the road.
Calculate Your Down Payment
There are plenty of 0% down offers, but don’t let yourself be fooled by them! They are often not as good as they look, as they come with other compromises, and are usually reserved for people with the best credit score in any case. Remember that your aim is to build up as little debt as possible, so the larger the down payment the better. This will certainly end up costing you less in the long run, as not only will there be less total payments but you will also probably get a better deal on the interest rate.
Aim for a Reasonable Loan
As not very many people are able to pay the full price of the car immediately, most people get an auto loan. In fact, according to CNN, today around 107 million Americans have auto loan debt, which equals in approximately 43% of the adult population of the US.
However, having a loan means that you will have recurring monthly payments. In general, avoid spending more than 15% of your monthly income. Consider which areas – if any – you can cut from your personal budget, such as your vacation or entertainment budget.
Don’t Forget to Consider Insurance
Insurance can be really expensive, especially if you’re a new driver. However, it is possible to get fair rates which come with great service. Shop around for the best insurance deals or use comparison sites to help you determine the best quotes. Remember that the cheapest quote definitely doesn’t always correspond to the best service. Make sure to read the fine print, which will tell you how a company will react in case of car accidents or similar events. Ultimately, be sure to choose an insurance company that has excellent service and will allow you to explore all of your options.
Make sure to do your homework in all areas of budgeting for a new car. Examining every expense and every aspect of your budget will allow you to budget effectively.