Buying a car is a big step in life. It can be a personal milestone or a rite of passage. Or, it can be nothing more than a necessity, whether to replace an old vehicle or account for an expanding household. Either way, it’s also a major investment — emotionally, financially, and in terms of the time it will take you to find and secure just the right car for you. But it’s the finances we’re concerned with today — so here are a few things you should think about before getting behind the wheel. It’s not rocket science — and it just requires a little bit of research.
Your Current Financial Situation
First and foremost, you should think about where you stand with your finances right now. A few things to consider:
- Are you financially stable, with an income you’re likely to keep at its present level?
- Once all the bills are paid, do you have enough leftover income to make car payments comfortably?
- Do you have other financial goals, like buying or renovating a home, building up a savings account or emergency fund, or even starting a family?
While these may seem basic, they’re also important considerations — as the saying goes, you should hope for the best while preparing for the worst.
Cash or Credit?
Not everyone has the resources to buy a newer car outright with cash. It can take years to build up the necessary funds, even barring financial setbacks or changing plans. So it’s not surprising that many people choose to get a loan. But getting a loan will come with its own financial considerations:
- Should you wait to save enough for a big deposit, thus making the loan (and your payments) smaller?
- Can you afford to wait on the car, or is it an emergency you need to take care of right now (i.e. you need it for work). If not, you may consider saving up enough to just buy your car cash, eliminating the need to deal with car payments.
New or Used?
There are plenty of perks to a brand-new car: you get all the latest features, expensive maintenance is (hopefully) a long way off, and, of course, that new car smell. But brand-new cars can also cost more to insure, not to mention the size of the loan payments. There are plenty of excellent used or nearly new cars on the market that will cost you a lot less, with almost all the perks of a brand-new car. All you have to do is do some looking around and chances are you’ll find a used vehicle you love every bit as much.
What About Financing?
When it comes to financing your car, you may end up having more to be concerned about than just deciding between a loan and buying your car outright. If you’ve had some trouble with your finances in the past, such as poor credit or a sporadic work history, that may impact your ability to get a loan at all. That’s not to say you have no chance of getting a loan with poor credit or spotty work history — some lenders will likely still work with you, but you may end up paying higher interest rates than you’d like.
Insurance Needs
Of course, monthly car loan repayments aren’t the only thing you’ll have to consider when buying a car. Insurance is a necessity if you’re going to be driving, and what kind of car you buy does make a difference when you’re choosing a vehicle! Newer cars often cost more to insure, as do cars of a certain make, model, or even color. To get the most out of your dollar, it will (literally) pay to compare insurance rates side-by-side and find the best deal for your needs.
Ongoing Costs
The financial responsibilities that come with car ownership don’t end there either, unfortunately. You’ll also have to think about the other associated costs, some more “hidden” than others:
- Title and registration fees. you’ll have to pay a yearly fee to keep your car registered with the state, as well as a fee to transfer the title to you. This can cost up to hundreds of dollars a year, depending on the age and type of your car.
- Fuel costs. Every vehicle needs gas (or electric), and once again, the kind of car you choose can make a big difference in your monthly fuel costs. That massive SUV might have room for all your stuff, but you’ll also pay more when it’s time to fill up.
- Repairs. Accidents happen, parts wear out and break, and it’s all going to cost money. You should anticipate the possibility of costly repairs and set aside an emergency fund to deal with it, if possible.
- Maintenance. In order to help avoid those costly repairs, you’ll have to account for things like oil changes, inspections, tire rotations, fluid changes, and other necessary maintenance that can add up to hundreds a year.
Fortunately, there are ways you can save on your car expenses, too. It just takes some preparedness and forethought to help get the most out of your vehicle.
