Buying a new car can be a daunting task especially if it’s your first time. It’s also a big expense and a very big commitment you’re making so you have to take your time and make your choices wisely.
Dealers and financiers want to make the most money out of you as possible, so before you approach anybody about buying a car you first need to sit down and work out exactly what you can afford.
Work out your budget
If you do not have a budget it is probably a good idea to draw one up at this point. Deduct all your expenses from your net income. This includes things like groceries, savings, emergencies, as well as your current car payment if you have one.
Once you’ve drawn up your general budget you can determine how much money is available for a car payment each month. Include the amount you are currently spending on a car payment into this figure. Your car budget should not take up all the money you have left in your budget, it should be an amount that you can afford comfortably.
Now that you’ve worked out a comfortable car payment there are other things you need to consider as well. Things like fuel and car services and any extras you want for the car needs to be factored in.
Make a list of needs and extras. Find a car that has all the things that you need that fit your price range. If its below your price range you can start adding extras. Do not exceed your budget price, you will be setting yourself up for failure.
Get your hands on insurance
Once you’ve narrowed down your options, call your insurance company, and shop around for some car insurance quotes. Remember there are many different factors that impact your premiums. Don’t just settle for the first quote you get, go with the one that suits your pocket.
The first thing you need to figure out is for how long you can finance your vehicle. The longer the financing period the smaller your installments will be but the interest will be higher. Ideally, you do not want to have to settle a balloon payment at the end of the payment plan.
Remember the value of your car depreciates the moment you drive it off the floor so you’re going to end up paying much more than your car was worth. Try to put down the largest deposit you possibly can, 10% to 20% of the purchase price is ideal. This will help lowering installments. Try to secure a short repayment plan with the lowest possible interest rate for you.
Warranty and service plan
If you buy a used car it is possible that the car is still under warranty and it might also have an active service or maintenance plan. This would be a saving for you. So, if you are looking at buying a used car try to find one with a good enough portion of the warranty and service or maintenance plan still active.
In the case that you are buying a new car try to buy a car with the warranty and maintenance or service plan included in the purchase price. If it doesn’t come standard in the purchase price you have to be sure that your budget can accommodate a service plan.
Now that you have an idea of what your car payments possibly will be, you can start saving for a substantial deposit. Besides your deposit you also need to think about reducing some of your other debts so that you can afford your new car more comfortably. The rule of thumb is that your debt should not be more than 36% of your income. Try whittle down some of your old debt to ease the pressure.
Try to be a bit more frugal in the months leading up to your purchase and cut down on unnecessary spending. This will make it easier for you to afford your dream car because you will be able to put down a larger deposit. This will make your monthly payments smaller which means you’ll have more room in your budget for other things.