Have you ever gone to a dealership and fell in love with a car - only to find out that there’s no way you can afford it? Worst feeling ever, huh?
After that, you don't even have the desire to look at another car because your mind was set on THE ONE.
It’s happened to many of us. That’s why it’s important to be conscious of your budget and what you are comfortable spending when you start the car buying process. Once you walk onto the car lot, a salesperson is going to try to get you to make a purchase by playing to your emotions - not your budget. Buying a car is exciting, but going into the dealership with the right mindset and a strong attitude can help make it a true success.
Here are tips to determine if you can afford a new car.
Review your budget
There is no kidding yourself when it comes to budgeting because you'll only be hurting yourself.
After you determine your monthly income, it’s time to figure out how much you spend each month on essentials. Rent/mortgage, utilities and food will fall into this category. Next, take stock of other monthly bills, including any types of loans, insurance, cell phone and cable. Another important aspect of your budget is growing your emergency fund and savings. How much do you set aside each month for these categories?
A budget planning calculator can help you get this task done.
Use an auto loan calculator
After coming clean with your monthly income and expenses, then you'll have an idea of how much you could afford to spend on a new car. Would spending an additional $400 each month still allow you to pay all of your bills and contribute to your savings? Would you be willing to give up cable to increase your car budget?
Using an auto loan calculator will give you a good idea of what your monthly payment will be. An auto loan calculator like the one from Squeeze calculates the car price, any trade-in or down payment money and interest rate to estimate your monthly car payment.
Having this information in the back of your mind will give you the confidence to get the car you want at a price you can afford.
Don’t forget to factor in car insurance
Buying a new car involves more than just the price of the car. Additional costs may include sales tax on a new car, title/registration fees and, of course, insurance. For any driver, car insurance is mandatory. It’s important to remember that your car insurance rate could be affected if you buy a new car. A small sedan will have a different insurance rate than a luxury SUV, for instance.
There are several factors that go into determining car insurance rates, and each insurance provider has a unique formula. In addition to vehicle type, other factors that insurance companies use to determine rates are:
- Driving record
- Vehicle type
- Marital status
- Lapse in coverage
>>COMPARE: Compare insurance rates today
If you have a certain type of car you want in mind, call your insurance company and ask them for an estimate of how it would change your insurance. Be sure to ask your insurer about any auto insurance discounts that you may be eligible for and aren’t receiving now. Some common discounts are offered for taking a defensive driving course, driving less than 10k miles a year and even just being a safe driver.
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 willing to work with you on your terms, it doesn't mean all dealerships will give you the same deal.
If you need to save a little bit more for a larger down payment that would help lower your monthly payment, then wait. If you need a couple more points to boost your credit score, then wait. Cars are commodities; there will be another one waiting for you as soon as you turn the corner. When you're ready, you can start the car buying process.
Buying a new car is a big financial decision, so never rush a new purchase. You should walk away from a deal feeling excited and confident.