Buying a new car to drive around can be an exciting prospect, but never jump into buying a vehicle without first knowing what you can realistically afford. There’s nothing worse than buying more vehicle than what you can pay for, and then have it repossessed, or at the very least have it make your life more difficult. That’s why you need to take the time to build a car budget, so you know what you can afford to pay each month and how much vehicle you can actually buy.
Know What You Can Afford
Go over your monthly bills and decide what you can easily afford, and also how much you want to spend on a new vehicle. Find out that rough monthly figure and then write it down so you have it available. This calculation should include all if your income, expenses and the money that is left over after the month is done.
Build Up a Down Payment
It’s important to build up a down payment before you go after a car loan. This will help reduce the monthly payments of your purchase and may help get you into a more expensive vehicle, if you like. Look around at different vehicles you are interested in, and come up with a rough price that you expect to pay for the vehicle. Now save up about one-fifth of that amount to put down on the vehicle. That means if you plan on buying a $20,000 car, you would want about $4,000 as a down payment before you make the purchase. This down payment will certainly reduce your loan amount and may qualify you for a more favorable interest rate. With these two factors working in your favor, you will save on your monthly payments, too.
Obtain a Loan
While you can get a loan for the vehicle at the dealership, it’s much better to go through a bank in advance. You can get a loan with a lower interest rate, and save a great deal of money in the process. Provide the bank with all of your financial information, and let them know the price range of the vehicle that you are interested in purchasing.
You shouldn’t expect to spend more than 20 percent of your monthly income paying that car payment, and this is a figure that most banks rely on to determine how much to give you.
Consider the Additional Costs
When putting together your budget, you need to consider that you’ll be spending more than just your monthly loan payment. You also need to factor in annual maintenance, insurance and fuel costs for your vehicle.
You’ll pay to change the oil and tires, make repairs and to keep it full of gas. All these things take money and time, and you should expect to spend at least $1,000 in additional expenses on your vehicle each year, with that amount being much higher for more expensive vehicles.
Make sure that when you put together a vehicle budget you are realistic about what you can afford. Factor in those added costs, and keep some extra cushioning from your monthly earnings to help you avoid missed payments and other issues with keeping up with your expenses. As long as you do this, you don’t have to worry about any financial issues when buying a vehicle.