There is almost nothing as thrilling as driving around in a new car. For many people, a large portion of their daily lives is spent in their car getting from point A to point B, and so it is important to them that their car runs well and is a comfortable place to be.
Perhaps that is the situation you are in, and maybe your current vehicle just isn’t living up to your standards.
If you are in the market for a new set of wheels, read on to learn three essential steps to budget for a new car.
- Ascertain how much you can afford and what to spend on a new vehicle.
Your first step when budgeting for a new car is to create a realistic budget prior to looking at your options. In order to devise this, you need to determine both how much you can afford to spend and how much you want to spend. Remember: Just because you can afford something doesn’t mean you are required to upgrade to the fanciest model on the market!
However much you decide on, the car price range you are looking at should squeeze in nicely with your current budget. Generally, it is recommended that you keep all of your debt payments to 36 percent or less of your total income.
Luckily, there are is an abundance of new and used cars on the market and a variety of ways to finance them. This ensures that there is an option for every budget.
Keep in mind that you also have to add the price of the vehicle’s registration and insurance to the starting price. Regarding insurance, it is best to contact your insurance company and ask for a quote for the insurance premium for each potential model so that you can include the insurance payment in your budget.
When you go into car dealerships, remember to stay firmly within your budget. As much as the salesperson may try to tempt you with something else, stay strong, responsible, and don’t budge from the figure you have decided on. You don’t need to tell the salesperson your budget; instead, have the number at the front of your mind while you find the right car. At this point, you can then try to negotiate down the purchase price.
- Determine the availability of a deposit on the vehicle.
Now that you have ascertained how much you can afford to spend on your new car, it is time to research the availability of a deposit. If you are able to make a deposit, then you are in a position to lower your monthly loan costs. Furthermore, you will save more money as you’ll end up paying less interest throughout the loan.
If you currently own a car that you are interested in trading in, calculate how much that will reduce your monthly costs. On the other hand, you may want to sell the vehicle yourself and then apply that money toward your deposit.
While it isn’t always a practical reality, the ideal scenario is for you to pay as much as possible for your deposit in the hopes of reducing or eliminating loan payments.
- Decide for how long you want to finance those wheels.
The next essential step is to consider how long you want to be financing your new vehicle. Generally, your options lie somewhere between one and five years.
What is the difference?
Well, the longer you finance a car for, the lower your monthly payments will be. However, you will be responsible for paying more interest, and you could end up owing more than the vehicle is worth, which can be an issue if you are looking to sell or trade in the car prior to it being fully paid off.
At this point, it is highly recommended that you use a car loan repayment calculator to determine your monthly, fortnightly or weekly car loan repayments.
Have you recently obtained a new car? If so, what were your tips and tricks for creating a responsible budget? If not, what is the primary challenge holding you back? Let us know in the comments below!
Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.