Step 1: What type of vehicle do you want?
Let’s see….how to buy a car? hmmmmm…, well, you need to begin with what kind of car you want to buy. Do you prefer a luxury vehicle like a Mercedes Benz or a BMW? Or do you prefer a “mid-level” car like a Honda Accord or a Toyota Camry?
Do you actually want a car or do you like SUVs? Do you want a crossover SUV or do you want a full-size SUV? Maybe you like trucks? Wagons? Minivans?
Do you prefer domestic cars made in the USA or do you prefer a foreign-made car? Do you want to pay more for a custom paint color? Do you like 4 or 6 cylinders?
The answer to how to buy a car lies in doing your homework with some “pre-shopping research”.
You have to decide what criteria are most important to you when it comes to a car. Does it just need to be a vehicle with an engine that can get you from point A to point B or do you prefer to ride in comfort and style and want navigation and Apple car play?
Once you figure out the basics, then you have to determine which car you can actually afford.
Step 2: Can you afford this vehicle?
I absolutely love Suze Orman! I love reading her books and I used to love watching her show on NBC. I especially love the segment that she called “Can I Afford It?”
During this segment, people would call in and ask Suze if they could afford certain items and she would either say they could afford it or she would tell them they are denied!
Sometimes she would flat out ask them if they were crazy for even calling in and asking her such a thing! Now I am going to ask you, would Suze Approve or Deny you for this vehicle that you want? Can you really afford it?
If you’re not sure, let’s see.
First off, you have to be able to (a) afford to make the car payment to the finance company, (b) afford the monthly insurance payment to the insurance company, (c) afford the cost of fuel for the vehicle, and (d) afford to save 1/12 of the annual maintenance cost to a savings account.
If you are not able to do the above, at a minimum, then you cannot afford the car that you want. Sorry. But it’s true. You can’t afford it.
Step 3: How will you pay for this vehicle?
Good question; how will you pay for the vehicle??? Will you pay cash to buy the vehicle outright? Will you make a down payment and finance the remaining cost? Will you pay zero down and finance the entire cost?
In order to answer these questions, you have to take inventory and see where you are with your personal finances. You need to determine if you are on a solid financial foundation or is your financial foundation shaky? If your personal finances are solid, you may be in a good position to buy a vehicle, but if they are not, you need to give buying some more thought.
I would start with my monthly budget. I would review my budget with and without a car payment. If you view the budget with a car payment and see that it is overextending you, then you can not afford the payment that you are thinking of making. You will need to either decrease the payment or forgo a payment altogether.
Now, if you cannot afford the payments, then you can buy a less expensive car or take the time to save up money to buy a car outright. Another option is to save up enough money for a down payment on a car so that the monthly payments do fit into your current budget.
Only you know which scenario best fits with your lifestyle, so give it some thought and choose wisely.
Step 4: New vs. Used vehicle?
Hmmmm…should I buy a used vehicle or a new vehicle? What are the pros and cons of each? Another great question!
If you buy new:
- You will pay the most expensive price you can pay for a vehicle. You will pay MSRP or close to it and you will lose close to 20% of that value within the first year of owning the car. That means if you buy a $20,000 car, it will only be worth between $17,000 – $16,000 after only one year of ownership. (I don’t want that deal!)
- You will have the confidence and peace of mind of knowing you are riding in a new car and should not have to worry about maintenance issues.
- You may need “gap insurance” on some new cars if they are very expensive or if you traded in a vehicle and had to add the balance of that vehicle’s payoff amount on top of this car loan. Gap insurance is another expense that will cause your monthly car payment to increase, so be sure you can afford this extra cost.
- If you finance the new car, you can get a lower interest rate that is normally higher on used cars.
- New cars come with warranties, where used cars can be sold “as-is”.
If you buy used:
- You will pay close to the true value of the car if you do some pre-shopping research and check websites like Kelly Blue Book or Edmunds.
- You may incur more maintenance costs because normally older cars require maintenance more frequently than newer cars.
- You will more than likely save on the cost of the car because older cars cost less money than new cars.
- You may also save on the cost of car insurance because used cars may or may not require full coverage insurance.
That’s it! We’ve come to the end of another post! Now you know how to buy a car you can afford!
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