Personal Finance

New Car, No Regrets: When to Know You’re Financially Ready to Buy

Interestingly, Americans do share a unique relationship with cars. If you observe a typical American family, you will notice one thing in common. It would not be wrong to say that apart from the house, the next most expensive asset they would prefer is a car!

New Car Sales Booming

Contextually, the value of a new car starts to depreciate the minute you drive them off. Apart from considering the price of the car, it is essential to consider the various factors after purchase. We are sure that if you have decided to buy a car, you would have an array of the multiple models and features of the car. Moreover, some of you might have started smelling its ambiance in your parking! What makes your purchase even more convenient is the payment options to buy the car.

But, is it all about spending bundles and getting it parked in your house?

Indeed NO! Purchasing a car requires crucial decisions to be made. It can pose as more of a liability than an asset since the value decreases eventually. For many people, a car would come with a substantial loan and would require you to clear the monthly payments. While such high stakes can seem overwhelming, how about easing your way down the line?

Scroll down to explore the different aspects of purchasing a car. Let your hands pick the best model, keeping a close eye with further financial conditions.

Before buying a car, are you financially ready?

There are lots of things you need to check off your list. If you’re wondering whether it’s time, here’s what you need to know.

  • Buy New or Used?

The first thing you need to think about is whether you want to buy something new or used. Think carefully about this one as it impacts a lot of your other decisions going forward. There are benefits to both options. Sometimes, it’s easier to find a vehicle that’s in your price range if you go used, but the prices have definitely creeped up on them.

A new vehicle might have updated safety equipment like back up sensors and collision avoidance systems, but it might cost a lot more than you’re willing to spend. Also, new cars tend to depreciate rapidly. When making a list of vehicles, consider what you’ll use the car for.

Will you commute to work and back or is this more of a “fun car?” Do you work from home? If so, why do you need a vehicle?

If you decide to go with a used vehicle, have your mechanic check it over to make sure there are no hidden problems. Make sure it’s got basic safety features like airbags, and antilock brakes. All newer vehicles have them.

  • How Will You Use It?

Your dream car might be a convertible or maybe a Porsche, but that might also not be practical. It might not be something you want to commute to and from work in. When making your list of cars, ask yourself what the vehicle will be used for most of the time. If it’s commuting through heavy traffic, then you probably don’t want a standard transmission, for example. If you’re driving four kids to school, sports, and other extracurricular activities, then you probably want something like a van or SUV.

Also, consider where you live. If you live in the north, for example, you might want 4-wheel drive during the winter. If you live in the south, you might not need it. Fuel efficiency also factors into this equation. If you get an SUV, you will probably be paying more for your gasoline than if you have a car.

  • Fuel Efficiency

Buying a hybrid vehicle used to be an easy decision. There weren’t too many models on the road to choose from. Today, it’s not such an easy choice. Choosing a hybrid or flex vehicle can lower your fuel costs dramatically, but they can also increase the base price of the car. There are some additional factors to think about too, like the fact that you can get a tax credit for buying a hybrid.

On the flip side, the total cost can be 20% more than a gas-powered vehicle. If you’re financing, keep in mind the additional interest you pay if you need to buy the more expensive hybrid or electric vehicle.

Some rules before you drive off your car from the showroom

  • How much to spend on your car?

In the present context, buying a car can hold greater importance. But how to decide how much amount you should spend on your purchase. Well, in this case, the 1/10th rule can fit in your decisions well. Let us make that simpler. It is advised that one must not spend more than 10% of their gross annual income. That calculation has to be made on the purchase price of the car. You may be wondering why?

It is because while you are buying a vehicle, it is not only the upfront price that has to be cleared. There is numerous running cost involved with the car that has to be settled for making it clear on the roads. For instance, if your median household income is $72000 a year, limiting your budget to $7200 to buy a car can be useful in the long run.

Contrastingly, why spending more than 10% of your gross annual income be a horrible idea for spending on buying a car. What do you think?

  • Hidden costs will eat up your savings.

While you buy a car and drove it to your parking lot, does your purchase end here?

Indeed, there are various maintenance and hidden costs that get incurred with the purchase price of a car. Moreover, the more you dive your car, the maintenance cost you would incur. Also, it is impossible to predict everything with 100% certainty, and there may be some damage in the car as it lands for a road journey. You can have those fixed up only ill you have a warranty, but what after that!

Apart from the maintenance costs, there would be insurance costs for the vehicle and different parking and traffic tickets. Also, the thrill that carries your interest in purchasing a car can be highly critical. So, it is better to decide between buying a car with all the monetary details placed at the top shelf.

  • Robbing your financial freedom

Imagine, you parked your brand-new car in the parking area of a grocery shop. And after shopping, you found some scratches and dents over the body of the vehicle. How would you feel?

You may get stressed for even a week. Moreover, you would always have the ears to the door dings of your car. How about driving in traffic?

Indeed, that wouldn’t be less compromising. You would always be on the edges as you would fear that your car does not get damaged. Is this the way you thought of enjoying your first buy?

Certainly not. Ensuring that you have your financial freedom intact at your list while buying any vehicle is essential.

  • Setting up your budget

Interestingly, tracing down the outlines of a budget-friendly car can be a fantastic idea for your purchase. A budget allows you to select the best one that falls in for your financial functionality. But for instance, let us assume that you insist on buying a car that slowly crosses your budget line. In case you want to own a $40000 luxury vehicle, what could be the next step for you?

To resist the habit of overspending, you can instead insist on earning those $40000 and then go for a buy.

In conclusion

Whether you take small steps or a big one, it should align well with your budget proceedings. Making a positive step to increase your saving can be highly beneficial for you in the long run. Moreover, before purchasing any vehicle, get on the heels to deal with the different pillar of financial costs that get involved with them automatically.

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