Purchasing a car, new or used, is exciting, but it is also a huge undertaking.
What most car buyers don’t realize is that they’ll need to have the funds available to afford more than just the price they’ve seen advertised.
Though budgeting may not have been something you considered, it is an ideal first step before deciding to purchase a car. It is imperative to know before you go car shopping just how much car you can afford.
Let’s take a closer look at how you can determine this for yourself.
True Purchasing Costs
The ticketed price you see advertised on a new or used car is only a sub-total of what it will actually cost you to drive off the lot with the car. There are a lot of costs associated with purchasing a car. This includes:
- Loan Costs – Unless you have the money to purchase a car outright, you’ll need to take out a car loan. In order to get the most affordable auto loan, it is ideal to shop around. While the dealership may have financing options for you, sometimes looking for solutions on your own, like shopping private lenders like New Roads Auto Loans, can lead to offers for individuals with less than perfect credit. Associated loan costs can include the down payment, fees, and interest rate. You’ll need to calculate the total cost of the loan to determine if you can afford the monthly payments.
- Taxes, Registration, and License Plate Fees – The down payment and cost of the loan is not the only thing you’ll be required to pay in order to purchase a new or used car. Car buyers will also be responsible for paying sales tax, vehicle registration and license plate fees as well. These costs are typically not included in the auto loan and will need to be paid upfront. Depending on the type of car, where you’re located, and the cost of the car, you could be looking at several hundred or thousand dollars before you can drive off the lot.
- Cost of Ownership – Another factor that needs to be considered is the full cost of ownership once you’ve driven off the lot. Car owners will be responsible for paying for gas, maintenance, insurance, and repairs on top of their agreed upon monthly payments. While service contracts and warranties can reduce the out-of-pocket costs, the true cost of owning a car can easily reach several thousand dollars each year.
What the Experts Say
Most financial experts would agree that the average person should spend no more than 20% of their take-home pay on a car. This includes the cost of insurance, repairs, and other related costs. So, if someone makes $3,000 a month after taxes, they can afford to allot $600 of that towards their car each month.
What Your Budget Says
Although experts give a base percentage of what you can afford to pay for a card, the truth is, it depends on what your budget says. Look at your existing household budget to see how much money you have to spare. Remember, the amount of spare money you have left will not only go towards the car payment but should include all car-related costs. Therefore, if you cannot make the monthly car note, insurance payment, and pay for gas and potential repairs on the extra funds you have in your budget, then you probably can’t afford the car.
All too often, consumers get in way over their heads trying to afford luxuries like a house or a car. When shopping for a car it is imperative to make an informed decision. While tricks like haggling and comparison shopping can save some money, if you can only secure it is to live beyond your means, it’s probably best that you wait until you find a car you can afford.