The ins and outs of getting your new ride
One of the most common dreams around the corner we all share is buying a car. Maybe we’ve imagined ourselves in a candy apple red convertible. Or maybe we just want the added room of a SUV to more comfortably cart around the little ones. Either way, purchasing a new car is a big decision - and it’s important to understand that what we want and what we need can be two different things. Here are some things you need to know to ensure you own the car instead of it owning you.
Should I buy a new or used car?
There are certainly upsides and downsides to both. With a brand new car, there’s a smaller risk that it has a mechanical issue. And if there is, it may be covered under warranty. Not to mention – it sure is a beaut! On the flipside, a used-car could have issues arise sooner, and there’s no way to know for sure how well the previous owner treated it.
Of course, new cars can be pricier. Plus, a new car actually depreciates in value as soon as we drive it off the lot. In fact, its value can drop about 10% and another 10% during the first year we have it. This may be a reason to consider a used car, along with the fact that they can have lower insurance costs as well.
How much is right for me?
Not sure what your budget for a car is? As a general rule, experts say you should spend no more than 10% of your monthly income on your car payment and insurance. Check out our car loan calculator to crunch your numbers.
Get down, down payment
A down payment is the amount we pay upfront when buying a car. A bigger down payment means the less we have to borrow, which means we pay less in interest.
Whether you’re buying new or used, it’s recommended to put down 20% in cash, but if it’s in your budget, even more would be better.
The length of your loan
While the amount we choose for the down payment affects the amount we have to borrow, we also have to consider the length of the loan we choose. Loans generally range from three to five years, with some stretching longer than that. With loans you pay off quicker, you’ll have a higher monthly payment but a lower cost overall. The longer the length of the loan, the lower the monthly payment we have. But we’ll pay more overall since we pay interest over the length of the loan. It might be tempting to take that lower monthly payment that comes with a six- or seven-year loan, but know that it’s costing more in the long run.
Additional costs when buying
Don’t forget - what we’re paying for the car doesn’t start and end with the sticker on the window. When we sign on the dotted line, we’re on the hook for taxes, licensing fees and the title, too. Depending on where we’re financing the purchase of the car, whether it’s the dealership or a bank, we could have to pay these at the same time we purchase the car.
Keeping the car payments rollin’
Just as we’re finishing the payments on the car we’re currently driving, it’s tempting to put that bit of extra cash toward something else. It’s actually the best time to start saving for the next car we’ll buy, though. We’re used to that amount coming out of our account each month, so there will be no surprises. All we have to do is set up an automatic transaction to our savings account each month, and when it’s time for a down payment on a new ride, we’ll be ready. For some other life hacks to help you save a bit extra, check out this blog.
A big part of ruling your tomorrows is not just saving, but knowing the smart moves to make when it comes to spending. Check out our ebook for more great help.