If you’re looking to purchase a new car, it’s important to have a budget in place.
Having one in place will help you avoid making the mistake of getting carried away by the excitement of a new car purchase, spending more than you can afford, or buying a vehicle that doesn’t fit your lifestyle.
To figure out what you can afford, first determine your total monthly income. This includes your rent or mortgage payment, utility bills, credit card payments, and loan payments, as well as food, clothing, personal care items, entertainment, and savings.
Then subtract your expenses to get the amount left over.
A good rule to follow is to spend no more than 10% of your gross annual income on a car purchase. This is a budget that will allow you to cover the cost of the car itself, as well as other costs associated with owning a vehicle, including insurance, gas, maintenance, repairs, registration, and property taxes.
It’s also helpful to consider how much money you have available for a down payment or trade-in equity. These are both ways to reduce your overall cost for a car, as they lower the amount you have to borrow.
Another way to keep your cost down is to buy a used car. Purchasing a used car will typically result in a more affordable payment than buying a brand-new vehicle with a similar model year, plus you’ll save money by not having to pay sales tax or other fees.
If you do decide to buy a new vehicle
The next step is to shop around for a car loan. You want to find a lender who can provide you with a low-interest rate and an affordable payment that fits your budget.
Having a good credit score can also help you get a better car loan. Buyers with less-than-stellar credit scores usually have to pay higher interest rates on their financing. Having good credit also helps you avoid the stress of having to deal with credit issues like dings, scratches, or other blemishes on your credit report.