Time for a new car?
One of the hardest parts about buying a new car is choosing something you can absolutely afford. Persuasive car sales people combined with shiny paint can ruin a person's budget in a hurry!
At the end of the day, most people need a reliable car. The process of car shopping on a budget isn't too difficult. But it does takes heaps of self-control. When shopping for a car, you can remain within your budget by taking the following steps:
Figure out How Much You Can Afford
Create a new budget by listing out all your current expenses. Compare your income and expenses. What you have left over can be used to pay for your car. If you feel you don’t have enough left over, you may have to cut your expenses and prioritize your spending by avoiding costly budget busters.
Consider expenses like fuel, auto insurance and maintenance. If you can only afford $400 per month to spend on a transportation, don’t sign for a $350 car loan. Instead you might, want to spend $200-250 per month on a vehicle and the rest for insurance, fuel and savings for maintenance and repairs. The car itself is only part of the overall transportation costs.
Bankrate has a very helpful tool to help you create a realistic car budget.
Try to Stick with Cash
If you have some savings and don’t want to deal with the burden of having a car note, try to purchase with cash. This may not be possible for everyone, but the earlier you start preparing the better. If you know you want to buy a car or notice that your current car on its last leg, start setting money aside each month. A little each month goes a long ways.
Unless you have $15,000+ lying around, you will most likely need a used car. Luckily, there are plenty of used cars in good condition for as little as $4,000. If you don't have enough to pay for a car completely with cash, you should still try to save up a large down payment to lease or finance a car.
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Leasing or Financing?
There has always been a big debate between leasing and financing options. When you finance a car, you pay a down payment and a lender loans you the rest of the money. You then pay it back with interest for a certain amount of time. Once you’ve paid back the entire loan plus interest, you own the car.
With leasing, you pay a fixed amount each month (usually a lower than a monthly payment than with financing) plus interest. When the term is over, you must either renew your lease or return the car. You may also be able to buy the car once the lease expires.
If you can’t pay for a car in cash, financing is the wiser option. Often, when you lease a car, there is a penalty for driving a certain amount of miles so you watch your odometer. Also, there is no point in hustling to pay back your lender and make extra payments with a lease. Doing so won’t get any closer to owning the car.
For the most part, leasing just allows you to drive a nicer, newer car at a lower price for a short amount of time. Buying with cash or financing are the superior alternatives.
Check Your Credit
If you do choose to move forward with financing a vehicle, you’ll need to check your credit first (this link shows you how do check it for free). Your credit score will be key in determining how much money you get approved to finance and your interest rate. If you don’t have good credit, you may run into problems.
Pull your FICO Score several months before you decide to go car shopping. Make sure it's doing okay. Credit Sesame lets you monitor your credit for free and also lets you see credit scores and reports for TransUnion and Equifax. Make sure to always keep an eye on your credit score in the future. Here's a way you can keep track of your credit score for free.
It’s important to pay off as much debt as you can before you take on more debt. Try to only use 25% of your credit limit each month. You might also want to wait for some of your old credit inquiries to fall off your report before you add new ones.
Try to increase your score as much as you can. Higher scores mean lower interest rates. Your credit score is your ticket to savings.
If necessary, wait until your credit score climbs before applying for a loan. Even just waiting 3-5 months for a new car may save you hundreds per year in interest. Wealthy people are usually patient people.
Compare Vehicles and Pricing
When you are car shopping on a tight budget, it’s important to focus strictly on your needs and requirements instead of becoming emotionally attached to a car. Logic should trump emotion when car shopping. Always be ready to walk out the door without the car.
To help keep the price down, you should search online for economical used vehicles with low mileage. A car will probably cost less than an SUV or a truck in most cases so keep it simple.
You should also research various makes and models to become more knowledgeable about which type of cars last longest and require the least amount of maintenance. It’s best to be open-minded and compare various types of vehicles before settling on one.
To compare vehicle prices online, use online vehicle pricing and comparison tools like TrueCar or Edmunds. Although not necessary. it's wise to check Carfax before making an offer. Carfax gives buyers the scoop about how the car has been treated in the past.
Overall, it’s important to thoroughly do your research and stay within your means when buying a new car. All of these steps will make the car buying process easier and cheaper.
Are you car shopping? Do you plan to pay with cash, get a lease, or finance?
Originally posted 2015-09-02 10:00:24.