Yahoo Finance 5 Financial Factors To Consider When Buying a New Car
While a used car has financial benefits, you might prefer the luxury of a brand-new vehicle with a warranty and the latest tech and safety features. But with the average new car price sitting at around $48,000 per Kelley Blue Book, you shouldn’t decide on any purchase before you thoroughly examine your finances and total costs.
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Here are five financial factors you should consider when you buy a new car.
Your Budget
Looking at your budget helps determine what you can afford to spend. Subtract your current debt payments and other obligations from your income sources to find the leftover amount.
As you explore vehicles with this figure in mind, aim to limit your new vehicle’s monthly costs, including expenses like insurance and gas, to 10% of your monthly earnings. If this isn’t possible, consider waiting until you’re more financially stable.
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Your Total Ownership Cost
While your car loan payment is likely the largest monthly vehicle expense, your total vehicle ownership cost will include other items like insurance, maintenance, gas or charging costs, registration fees and taxes.
Many of these will be ongoing even after you’ve paid the loan off, so get some quotes or do calculations to ensure you can handle the costs in the long run. You should also research reliable, efficient and safe vehicles that help reduce some of these expenses.
Upfront Funds for the Purchase
Even if you’ll still borrow money for your new car, having some funds to pay upfront could make it easier for you to qualify for the loan, pay less interest or get a more affordable monthly payment.
Consider any money you’ve saved, as well as funds you’ll get from trading in or selling a current vehicle. A rule of thumb is to buy a new car when you can put at least 20% down.
Credit and Financing
To make sure you can qualify for financing and get a good rate, check your credit score and consider holding off a while if you have high debts or delinquent items.
When you’re ready to apply, contact banks and credit unions for preapproval rather than immediately going with the dealership’s recommendation. Plus, research any promotional vehicle financing programs.
Besides comparing car loan rates, carefully consider term options and different monthly payment amounts. While you might feel tempted to choose a long loan term for a lower payment, the extra interest amount paid could surprise you.
The New Vehicle’s Resale Value
Quick, substantial depreciation is the reality with many new vehicles and will hurt when you want to sell your new wheels someday. Plus, you could even find yourself underwater financially if your car’s value drops below your remaining loan amount at some point.
To make a better investment with your money, research cars with high resale values and narrow down your options. Such vehicles usually offer advantages such as high reliability, modern features and fuel efficiency, all of which can improve your ownership experience.
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