If you’re in the market for a new car, like many other people, you might want to hold on for just a minute or two and consider the financial aspects that come with purchasing a new car.
Over the years, a growing number of the American adult population have driven themselves into debt when purchasing a new car, only to later realize that their car-related expenses far outweighed their monthly income.
As of 2022, around 31% of American adults and car owners have stated they rely on an auto loan to pay for their car. Additionally, a further 14% of potential buyers said that they will be taking out a car loan, or applying for financing in the first half of 2023, according to Finder’s Consumer Confidence Index.
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Taking out a loan or car financing can be a safer option if you’re not able to pay for your new vehicle in cash or put down a large deposit. While these options do exist, it does however come with a debt burden that can take you several years to pay off the loan.
On average, American motorists pay roughly $700 per month on an installment for a new car. Used vehicles are slightly lower, with installments averaging close to $525 per month. What’s even more surprising is that nearly 15% of drivers have been found paying $1000 or more per month on car installments according to data provided by the automotive research company, Edmunds.
There are a lot of pros and cons to outweigh when you’re in the market for a new set of wheels, and while it can be a thrilling experience, it’s important to consider the hard-hitting financial aspects thereof, and how to budget properly.
Budget Before You Start Shopping
Even before you start looking for your new car, it’s best advised to take some time to consider your current budget and financial position. See whether you have enough financial leverage to include a monthly installment into your current budget.
If you notice that you have some financial leverage, the price is the maximum you’d expect to pay each month. Using a higher installment price will give you a good indication of whether or not you will be able to afford a new vehicle.
You can consider the installment settlement price based on whether you’re taking out a car loan from your financial provider, or a professional car financing authority. The better you budget for your new car, and your living expenses, the easier it will be to see if you can make the monthly payments.
Another important budget tip is to include car-related expenses in your budget. This should include expenses such as maintenance and services, tires, buying new batteries at a dealership or Costco car batteries, and insurance fees.
These small items tend to add up quite quickly, so it’s best to include these expenses along with your car installment. The best way to go about it is to go on an average of what these services and products tend to cost, and how much you will be spending in the coming years paying for it.
Replacing tires, or even taking your new car in for a major service is an expense you might come across once or twice a year. Have a good look at what insurance costs, and what other insurance products you will need to pay for.
Comparison Shop For Insurance
On the note of insurance, when you’re in the market of buying a new car, even if it’s used, take some time to shop around for different insurance quotes. The final price of your monthly insurance premium will depend on several different factors such as where the car will be parked, who will be frequently driving it, and even when you obtained your license.
There are loads of different insurance deals out there, and you will need to find one that works with your budget, and that covers all the basic and primary needs of your car.
Consider what you want to get out of your insurance packages, and communicate that with the insurance company. If you’re only looking for third-party insurance that will lower your premium, you might end up with fewer insurance benefits as opposed to taking out comprehensive car insurance that covers a broad range of factors.
It’s best to compare shops as much as possible and get the best possible deal you can find.
Calculate Your Monthly Installment
You can calculate your monthly installment online using a financing calculator. Typically private lenders and some bigger banks will provide these online services for free on their websites.
When calculating your monthly installment, see how much money you can spend each month on your car, and how much your deposit will help bring the installment down. Additionally, you will need to calculate interest rates which are usually added and the period over which you will be repaying the loan.
Some car dealerships will help you apply for the best possible financing, and this is also dependent on your credit score. The higher your credit score, the better chances you will receive a low-interest rate, while the opposite happens when you have a weaker or lower credit score.
Make several calculations, and see what are your options so that you can factor in any unforeseen expenses you might come across during the years when repaying the loan.
Boost Your Credit Score
As already mentioned, individuals with a better credit score often find themselves having a low monthly installment. Unfortunately, the same can’t be said for those individuals who have a low or near zero credit score.
In the interest of your budget, and making sure you will get the best possible financing options, see if there are ways you can improve your credit score over several months while you’re still shopping around for a new car and saving up.
Your credit score is vital to securing a loan with a bank or a private finance lender. This typically gives them an indication of whether you are financially stable enough to meet the requirements and to make monthly payments on time.
Open a small credit card account or even a clothing account at a store that will help you build some credit. You can purchase at a store and repay it over time, which will give you some extra benefits in the process.
Final Thoughts
Car ownership is wonderful, and if you’re one of the few people that are in a position to purchase a new car, then you might need to consider how you’re going to pay for it, and whether it works with your monthly budget. The better control you have of your budget and finances, the more it will become a reality that your new car is well within arms reach.
