So, you want to buy a new car? You have the ideal model in mind (a racy little red sports number) and are eager to get to the banks to chat about your car finance options. However, before you start car shopping, you will need to set up a budget for your car. This can be difficult to do, so outlined below are some helpful tips on how to budget for a new car.
Categorise your expenses
An effective way to budget for any major purchase is to go by the 50/20/03 guideline. This means that 50 percent of your budget should be spent on fixed costs, 20 percent of your budget should be spent on financial goals and 30 percent of your budget should be spent on flexible spending.
Car loans fit into the ‘fixed costs’ category, as you know exactly how much you will be spending each month on your car finance after using a car loan calculator. Be sure, however, that your car finance costs do not go over and above your monthly fixed costs and that it is a reasonable amount in comparison to your grocery and rent costs. Use a car loan calculator to see how much you can truly afford to spend each month.
Factor in the total cost
The total cost of your car includes more than just the sales price. It includes the sales and emissions tax, title and registration fees, and optional items, like extended warranties. Keep these in mind and allow yourself a little wiggle room for the budget of your new car.
The loan term, interest rate and down payment will also all affect your monthly costs, so be sure to factor these into your budget calculations too. An effective way to save money is to wait until the interest rates are lower and then look for a car as this might save you money on your monthly payments. Knowing what the total cost of your car will be, including maintenance and service costs that will come up down the road.
Do your homework
Applying for car finance before you have done any research on a car can be detrimental to your loan application and to your wallet. Do not keep your research to just the car you think you want to buy, look out for all the other options on the market.
Visit a variety of dealerships, conduct as many test drives as possible and keep an eye out for any upcoming promotions at dealerships or even bank sales. If you have a car, do some research on what you might be able to get for it if you sell it and use the money as a down payment toward your new car. It is important to shop around and negotiate prices as much as possible. Salespeople are always keen to make a sale, so will be willing to compromise on some terms.
It is exciting to look for a new car, but it is important to keep your emotions in check when shopping for one. You might have your eye on a sexy, sporty two-seater convertible, but does this car really suit your needs… or your budget?
When setting up a budget for your new car, you will need to think with your head and not with your heart. Make a list of what your requirements are, such as off-road ability, additional seating capacity or sizeable luggage space and leave the ‘luxury’ items off the list (a Bluetooth enabled USB port might sound great but will it bump up the price?). Make sure you find everything on your list in your car before you look for the added extras that could influence the price.
Consider new or used
Now that you have a budget in mind and a list of things you need from a car, it is time to consider whether you should buy a new or used vehicle. There are advantages and disadvantages to both, so be sure to make a list of both and do your research before making a decision.
The benefit of buying a new car is that you will receive the maximum extent of a warranty and service plan from a dealer network, and your car will be unblemished and have that ‘new car smell’. If you choose a used car, you will save a significant amount and you will not have to worry about the rate of depreciation causing loss of value in your car. You will need to consider which will best suit your needs and which is best for your budget.
Keep an open mind
Budgeting for a car is exciting but you will need to keep an open mind when looking for one to suit your needs and your pocket. The first step to take is to calculate your expenses and look into using the 50/20/30 rule to manage your spending. You will need to factor in the total cost of your vehicle by including the different taxes and all maintenance costs that might occur over the months. Do your homework and look at all the pros and cons of every model you consider. Before long, you will be driving off into the sunset in your new wheels.