So, it’s finally time to start planning for a new car, truck, or SUV. While it’s usually an exciting time and familiar process for many of us, when looking into a new vehicle, three seemingly innocent words can still cause quite the headache: budget, credit, and the “right” car. Let’s take a closer look at each of these aspects of purchasing a new vehicle.
Start the Car Buying Process
From the get-go, trying to navigate the numerous options inherent in purchasing a new car can be tough. Do you buy or lease? Get a new or used car? How do you finance the purchase? What about auto insurance? All together these questions can leave a person with their hands in the air and ready to throw in the towel. However, with a little background knowledge, the decision is one that no person should be intimidated by.
While you may be eager to pick out the make and model of your new vehicle, it is important to first get a few things in order, starting with your budget.
Understanding Your Vehicle Budget
Not many people like the word budget, whether from a broad personal finance perspective or in the context of making a major purchase like a vehicle. However, first establishing a budget for your new car is crucial out of the gate. Take the time to evaluate the numbers and you can save both time and money in the long run. If you’re not sure where to start or how much you can afford, follow this general rule of thumb:
Spend less than 15%-20% of take-home household income on transportation. Keep in mind, however, that transportation does not mean the cost of the car payment alone. This number includes fuel, maintenance, insurance, as well as other costs of owning or leasing a vehicle.
Getting in over your head on a new vehicle purchase can be easy when you don’t account for these ongoing expenses. Be sure to add up what you can afford for the monthly car payment as well as these ancillary costs before heading to close the deal on your next vehicle.
What About My Credit History?
An equally unpopular word in most people’s vocabulary is credit. A person’s credit score comes into play in more places than one might think in the car buying process. Outside of financing the purchase, a person’s credit score is routinely used to establish rates when it comes to insuring the vehicle as well.
Those who have a healthy credit score (generally speaking, above 700) are more likely to qualify for both affordable interest rates on the car loan and a lower cost of car insurance. If your credit score isn’t so hot, taking a moment to look at why that may be before buying is essential.
You need to be well-aware of where your score stands, which is done most easily by checking your credit report. Should you notice mistakes, clear up those up by submitting disputes to the credit bureaus. Additionally, putting in place healthy financial habits will help you tremendously moving forward. That means paying bills on time, avoiding maxing out a credit card, and not taking on too many new accounts right before getting an auto loan.
If your credit is not as high as you thought, it may be worthwhile waiting until you clear it up to continue shopping. The interest and insurance penalties that may be realized thanks to a poor score can add up to thousands during the life of your vehicle and loan.
Finding the Right Car
While we may all want the newest exotic import car or luxury SUV, the reality is that no car shopper is the same, and neither is the ideal car for them. To find the best automobile for your situation, it is important to consider a few issues:
- Who will be driving the vehicle?
- How many passengers will the vehicle typically transport, and of what age?
- What are the primary uses of the vehicle?
- Will the car mostly be used in the city, suburban areas, or rural areas?
- How important is cargo space?
- Will the vehicle fit into the owner’s garage?
- How long do you anticipate owning the car?
Each of these factors plays a role in finding the right car for you and understanding them can help with figuring out the budget for a new car payment.
After you have a firm grasp on these issues of buying a new automobile, you can move to the next step in the new car buying experience: doing your homework.
