New Car Time - How Much Can I Afford?
Have you ever gone to a dealership and fell in love with a car before knowing if you can afford it? Worst feeling ever, huh?
After that, you don't even have the desire to purchase or look at another car because your mind was set on the one that was a bit out of your budget's comfort zone.
It has happened to many of us, it is important to be conscious of those spending limits because even the salesman tries to get you into paying more by enticing your emotions. Buying a car is exciting but going into the dealership with the right mindset and a strong attitude can help guide you to a car and payment you’re looking for.
There are some tips and insights for getting the most out of car shopping with a happy wallet!
How does your budget look?
There is no kidding yourself when it comes to budgeting because you'll only be hurting yourself. Determine how much you spend a month on essentials like rent/mortgage, utilities, and food, etc. Then comes the other mandatory payments, any types of loans, insurance, cell phone, and cable service. It is always a great idea to also have an emergency or savings account for anything that comes out of the blue.
After coming clean with your fixed monthly expenses then you'll have a better idea on how much of a hit your additional payment might have your budget, can you afford an extra $600? $500? or $300?
Nowadays, it is a little difficult to obtain a loan of fewer than four years. The longer the loan the more obtainable the monthly payment is. On average, all of the new car prices are out of reach for a three-year loan.
Having a long-term loan is not a smart move, even though a lot of new car customers are taking out 5-7 year loans. Most of them are “upside-down” on their payments. Meaning that they owe more on their car loan than the price of the car itself. This could be avoided with a large down payment but it is difficult to come up with a couple grand on top of dealer fees and other costs that are brought into play when purchasing a new car.
New car = New insurance premium
It is difficult to fall in love with a car and then soon after find out that the insurance premium is more for six months then it was for a year. When you have a candidate in mind for a car then call your insurance company to have an idea on the increase or possibly decrease in price for your updated policy. There are also many great auto insurance discounts that are offered for taking a defensive driving course, driving less than 10k miles a year and even just being a safe driver.
The price of the car is a determinant factor in your insurance premium.
If your old car was only $5,000 and you’re looking to buy a car in the $30,000 range then your insurance might jack up a bit. Especially with a loan on your car, some insurance companies require additional insurance to be added to your policy.
What is a comfortable monthly payment for you?
This is the number that you will have to keep in mind. It is ultimately the highest amount that you're comfortable paying each month for your car. This information has to be kept as somewhat of a secret from the salesman you're negotiating with because the second he has your top paying amount then he will try to put you in the most expensive car possible or try to maneuver a way to make you pay higher interest to reach your top dollar amount.
Auto Loan Calculator
Using the auto loan calculator can give you a good idea on where your monthly payment might land. By inputting the cars price, the down payment along with the desired interest rate and the number of months you are planning to pay off the car - you'll get an estimated monthly payment.
Having this information in the back of your mind can give you the confidence to get what you want and what you’re looking for.
There's never a day that someone walks out of a car dealership with no car and wearing a long face. Always remember to shop around, if one dealership isn't compromising with you because of your down payment being too low or your credit score isn't high enough doesn't mean all dealerships will give you the same deal.
Buying a car isn’t a cheap investment, never rush a purchase. Salesmen are eager to find customers that are in a hurry, that gives them more leverage because they’re less likely to walk away without a deal.
If you need that extra $1000 as a down payment to lower your monthly payment then wait. If you need a couple more points to boost up your credit score then wait. Cars are commodities, there will be another one when as soon as you turn the corner.