From deciding what color you want to picking out the features you need, shopping for a new car is an exciting time. However, you also want to make sure your new car stays within your budget. Keep reading to learn some helpful tips on how you can create a budget for your new car.
Look Beyond the Sticker Price
When you’re shopping for a new car, don’t make the mistake of focusing on the sticker price and forgetting the other expenses that get added into the total cost of the vehicle. You also need to add in title and registration fees and sales tax to the actual sales price. Additionally, consider what changes in registration, insurance, maintenance, repairs, gas, and warranties you might have.
Determine Your Monthly Payments
While the sticker price of your new car is indeed a factor, the most important number to focus on is your monthly payment. Decide what monthly payment you can comfortably handle based on your income. The general rule is that you should devote between 10 and 20 percent of your monthly income toward your vehicle. As an example, if you make $2,000 a month, you can afford between $200 and $400 for your car payment.
Bring Down the Total Cost
Chances are you won’t have to finance the total cost of your new car. First, you’ll have to buy your car with a down payment. The more money you can put toward your down payment, the less money you have to finance and the smaller your monthly payment will be. Additionally, if you have an old car that you’re trading in, it helps to get a sense of the trade-in value. One easy way to get an idea of your trade-in value is to research what your current vehicle is selling for online. While you won’t get the retail price, it will at least give you an idea of what number to expect.
Consider Other Debt
If you already have a lot of debt from loans, credit cards, or a mortgage, you might not want to add even more to it with a car loan. In this case, it’s best to spend less than 36 percent of your total monthly income on your new car. For example, if you spend $600 a month on other debt and your income is $2,000 a month, you can afford a monthly car payment of $120, calculated as ($2,000 x .36) – $600 = $120.00.
Use an Affordability Calculator
Another good way to figure out the budget for your new car is to use an online affordability calculator. With this tool you can add in your down payment, trade-in value, length and interest rate of loan, sales tax rate, and desired monthly payment to get a price range for your new car.
When you’re shopping for the new car of your dreams, make sure you can actually afford it by using this information to come up with a new car budget.
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