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Apr
26

How to Budget for Your Next Car Purchase

Many consumers plan to purchase a new car but enter the process with no real plan at all. Budgeting for a new car purchase helps to ensure that you are making a financially sound decision well before you sign on the dotted line. With that in mind, let us consider the steps you can take.

Get Preapproved for a Loan

You can get preapproved for a loan well before you need the loan, and banks and other lenders can do soft pulls that do not affect your credit. An early peek into your loan options also helps you avoid the most commonauto loan mistakes. This step is important particularly if you are building or rebuilding credit since your borrowing options may be less than what is financially feasible.

Choose a Vehicle in General

It helps to have a target. You do not need to know the model or even the make at this point. But you should have an idea about what you are looking for and where that places you in terms of price range. Think about the features that are important to you as well since advertised prices may not include that 8-inch touchscreen, for instance, that you really have your heart set on.

Determine You Target Monthly Payment

How much can you afford each month? How much do you want to afford? Be mindful that the rule of thumb is that you should not spend more than 15 percent of your take-home income. Therefore, if you take home $3,000 each month after taxes, then you should target $450 or less a month. There are calculators available that you can use to determine how these targets align with each other.

Factor in Insurance and Fuel Costs

Auto insurance must be factored in as well, and this can be a considerable additional amount depending on your driving history, where you live and how fancy the car. The same is true with fuel costs, and be mindful thatcar insurers tend to charge the sameno matter how much or little you drive.

Save the Necessary Down Payment

The final step is saving for the necessary down payment. A down payment may be necessary in order to ensure that you get the required monthly payment. Even if a down payment is not absolutely necessary, it may be in your best interest for other benefits that can come with paying more up front.

Your goal should be to buy a car that is affordable and practical but also that you enjoy. Save a little longer if necessary to get the vehicle you want. Additionally, you should always be looking to your next car purchase and ensuring that the choices you make now set you up well for the future.


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