Buying a car is one of the most expensive investments you will make in your lifetime. One that you will most likely continue to have to live with once the vehicle is paid off. And with the cost of both new and used vehicles hitting record levels, it’s definitely worth taking a few minutes to ensure you’re prepared to make such a large purchase. The best way to do this is by asking questions. Here are 5 questions to ask yourself before financing a car.
1. Can I Afford to Buy a Car at this Time?
Making sure you have the budget is one of the most important questions to ask yourself before financing a car. Is this the right time to add a significant car payment to your monthly budget, or to spend a good chunk of your savings?
If you have a limited budget, and your current car that is running just fine, then perhaps it might be best to hold off for a few months while you save up some more money. Doing so will give you the chance to put down a larger down payment or perhaps even buy a car with cash.
If, however, your budget is just fine, then this may be the perfect time.
2. How Much Should I Spend?
How much you should spend on a new car depends entirely on your own personal expenses and budget. Many financial gurus suggest you keep the 50/30/20 budgeting rule in mind as a guide. This budgeting rule suggests that you should try not to spend more than 50% of your income on fixed expenses like your mortgage or rent, phone bill, or car payment.
So if you’re planning to follow this rule, you need to make sure that whatever car payment you wind up with doesn’t bring your total fixed expenses past 50% of your income.
3. Should I buy new or used?
Whether you should buy new or used is another of the important questions to ask yourself before financing a car. When it comes to deciding between buying a new car versus buying a used car, both options have their pros and cons. True, you can save a lot of money buying used, but there’s nothing like the feeling of driving a brand-new car. Your best best is to sit down and make a list of the pros and cons of each, and make your decision from there.
4. How Much of a Down Payment can You Afford?
The fourth question of our top five questions to ask yourself when financing a car is how much of a down payment you can afford.
If you can put down a larger down payment, then your overall payments could wind up being a lot less expensive. Likewise, if you have a trade-in and money for a down payment, then your loan payments will be less.
Again, how much you can afford for a down payment depends a lot on your personal financial situation.
5. Can You Handle the Costs of Maintaining the New Car?
Buying a car is one thing, but having the money to maintain it is another thing. Ask yourself if you are able to afford the car payment plus the costs associated with owning and maintaining a car. This includes things like car insurance, gas, recommended maintenance, servicing, replacement of parts and any other costs that may come up.
Once you have a better understanding of the costs involved in financing a car, you are headed in the right direction. Your next step is to approach your bank or dealership regarding financing a car. There are several dealerships that have a unique in-house finance department, including Earnhardt Auto Centers’ Mr. Ed! You’ll be in great hands with them and they will answer every single one of your questions too.