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“How many cars can I buy?” is the first question before visiting the showroom or browsing the Internet.
But is it easy to answer?Not so much-especially in Average price of a car According to Kelly’s Blue Book, the price is $38,000. Swallow.
The rules of thumb about how many cars you can afford are everywhere. It is typical to hear such words:
- Your expenditure on all car expenses should not exceed 20% of your take-home salary.
- Your down payment should be 20% of the value of the car.
A kind Car Affordability Calculator Will help you calculate the plan based on the down payment, trade-in value and loan amount.
Recommendations from financial experts
Financial advisers warn against relying on these tools alone. These tools do not take into account factors such as auto insurance, credit scores, and the funds available to you.
“I usually think that in the long run, these rules of thumb usually lead to more spending,” said H. Jude Boudreaux, a certified financial planner from New Orleans, who learned something from a father who runs a car dealer. Two things.
Patricia D. Hausknost is a certified financial planner in Long Beach, California, and she agrees that the usual guidelines stop here. She joked that after she answered every car purchase question, she would say “it depends”-but this is the answer she insists on.
“It depends on your personal finances. You really have to look at your own situation and figure out,’What can I do and what is best for me?'”
7 questions to ask when you want to spend on a car
Apologies to anyone who wants to test drive now and ask questions later, here are seven questions. Financial advisors recommend that you ask yourself before deciding how many cars you can afford
1. What motivated my car decision?
Is it time to replace your “beater” with another car that can drive underground? Do you need something more reliable to deal with the cold climate you just moved to? Or do you want to buy something more fuel-efficient?
Knowing why you are buying a new car will put other decisions into focus, such as new or used cars, leases or loans.
Hausknost said, don’t forget to think about the future.
“How has your life changed, and will it stay that way for the foreseeable future?” For example, a pandemic shift to working from home may change your car payment priority. A growing family or an imminent retirement are typical considerations.
But boring practicality is enough. What if you just like the smell of a new car and want to change it? It doesn’t matter, just make sure you move on to the next question. If the math is successful, then go!
2. Can I control my cash flow?
Tighten the numbers.Know your income (income) and What to go out to play (expenditure). I hope you have the remaining money to buy a new car. When you consider monthly payments, loan terms, and other factors, this information will guide you to solve the next problems.
3. What can I bring to the negotiation table?
If you have cash on hand, please know how much you are prepared to give up. Do you have enough money to buy a decent used car? Are you willing to pay a substantial down payment for a new car? Boudreaux said, remember that cash advance can help you negotiate discounts.
If you have one Trade-in, Using an online value estimator, such as from Kelly Blue Book Find its value before negotiating.
4. How much debt can I handle?
What rules of thumb did we mention? If you are considering car loans, they are a starting point. Bob DiDonato, a consultant at Ameriprise Financial Services in Brookfield, Wisconsin, used these two:
- The value of the car should not exceed one-third of your total annual income.
- The auto loan payment should not exceed 10% of your monthly take-home salary.
“This is an intuitive check,” DiDonato said. “After all, everyone’s situation is different.”
Are these guidelines an extension for you, or can you extend these guidelines? To find out, here are the questions DiDonato and others asked their car buyers to consider:
- You have any other debts.
- Your cash flow (see question 2).
- The expected cost is imminent.
- How much cash do you have in the emergency fund.
- your Credit score, This determines interest rate On your loan.
The higher your credit score, the better the terms of your car loan-this will save you money.If you have no credit or a low score, it may be worthwhile to build credit or Improve your score.
Boudreaux got this reminder when he saw his father selling a car: Don’t just consider your monthly car payment.
“This is a very deceptive number, because dealers have a variety of ways to organize transactions to lead you to that number.” His suggestion is to talk about the price first, and then the terms.
DiDonato added the last question: “What really matters is how much debt you can bear emotionally?” If your car debt keeps you awake at night, it may be time to recalculate.
5. What is the “hidden” car cost?
What new or increased costs will your new car bring? This is DiDonato’s parade of popular car buying issues. And don’t be surprised by add-ons when buying. The following is the content to be processed:
- car insurance Rate. Whether it is a new car, a used car or a rental car, the premium for a new car may be higher than what you are paying now. Call your agent or visit the auto insurance website for details.
- Repair fees. Do some Google searches to understand the typical maintenance costs of the car you are considering (the Kelly Blue Book has Estimator). Some cars require higher grade oil and fuel.This EPA has a website Allows you to study the fuel cost of a specific vehicle by brand, model and year.
- Sales taxes and fees. These vary from state to state. You can do research through your state’s motor vehicle website, or add 10% of the car price to a rough idea.
- State fees Associated with ownership, licensing and registration. These will vary by state and transaction type.
6. Have I considered alternatives to brand new cars?
The more flexible your choice of car, the more likely it is to reach your consumption goals. “The most difficult thing is not to have an emotional attachment to a car,” Budlow said. If you are willing to consider options such as second-hand and leased vehicles, you will save money. In addition to your answer to question 1, the consultant will also provide these considerations.
If buying a rental car:
- You can buy more cars with your money rent Because the rent “will be relatively low relative to the value of the car,” Hausknost said.
- What is the maintenance plan? Some leases include service agreements, which can save you money and hassle.
- Most car rentals are based on 12,000 miles per year, and if the limit is exceeded, an additional fee will be charged.
- If you like to drive a car for many years or don’t want to pay monthly forever, this may not be for you.
- Remember: when the car rental expires, you can choose to buy it at the price specified in the contract. If you are considering this, please do your research to make sure the price is reasonable.
If buying a used car:
- A used car Will depreciate faster, which means that the value will decrease when you decide to sell or trade in.
- You may have more maintenance costs. If you want to avoid accidents, please consider extending the warranty period.
- A car you’ve rented before may be a good deal, especially if you shop around.
- If financing, second-hand cars often mean higher interest rates. But the lower cost means your down payment can also be reduced.
7. Final check: am I realistic?
DiDonato said that it is a common mistake for car shoppers to have an impractical impact on monthly car payments or cash outlays.
“In most cases, some analysis is required,” he said. How many cars you can afford “can’t be just an overnight decision.”
It can be helpful to discuss these matters with a trusted friend, family member, or financial advisor.Remember other the goal You have, for example, saving for buying a house, vacationing, retirement or children’s education.
Will your monthly car payment hinder these goals? And make sure you clearly understand your job security and consumption habits.
“The new car is a very emotional decision,” Hausknost said. “Let your mind guide you, not your heart!”
Diane M. Bacha is a writer, editor, and communications expert based in Wisconsin with extensive experience in newspapers, magazines, books, websites, and non-profit organizations. She is a contributor to “Penny Hoarders.”
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