Car Buying: Initial Planning

Buying a car is one of the biggest purchases you will likely make. Everyone wants to get into their dream car but it’s important to do some budget planning before making the big leap. Most people start by going to car maker websites or researching vehicles but it can pay off in the end to do some of the following before heading to the dealership.

Determine Your Budget

Knowing what you can afford to put down and pay on a monthly basis should be your first step in buying or leasing a new car. Some people think of the final price and some of the monthly payment when figuring out what they can pay but both of these approaches have pitfalls.

There’s certainly more to getting a new or used vehicle than the initial costs you pay to acquire and drive it off the lot (even if you pay cash for the entire amount at purchase). Car insurance, fuel costs and unexpected maintenance can really add up.

Newer cars almost always mean higher insurance rates. Used car maintenance needs can strike at any time. Bigger cars such as SUV’s and trucks will mean higher gas costs since they burn more fuel and have larger tanks.

It is wise to take a good look at all of your monthly expenses and your available cash to arrive at what you can afford to pay for a car. A good rule of thumb to go by is to not pay more than 15 or 20% of your total monthly income on a vehicle. If you’re paying more than that.

Your Credit

Your credit score and rating will have a huge impact on what you will pay monthly. Different rates will apply to different criteria. It is highly recommended that you obtain a credit report from all three credit bureaus (Equifax, Experian, TransUnion) prior to going to the dealership.

The higher your credit scores, the cheaper your payments will be.

However, if you’re buying a used car, this may not always be true. Regardless, it is important to know your scores in advance so you are not shocked when you have your sights set on a new car only to find out your credit rating makes it unaffordable.

New vs. Used

New vehicles are very tempting. Nearly everyone would love to drive that shiny new late model car. But, did you know that nearly 3 times as many used cars and trucks are sold each year than new ones? For some, buying new is the only option but you should consider both when making a decision. Below are some of the Advantages and Disadvantages of both.

New Car Advantages

New cars all come with full warranty protection which can save you on costs during coverage.
The latest safety, comfort and technology is often used in new cars.
Very few surprises. Since you are the first to own the car, mechanical problems or previous accidents are no longer an issue (if they are, you have your warranty).

New Car Disadvantages

Much higher cost.
Insurance costs are almost always higher (sometimes significantly). New technology and safety features can also give you insurance breaks however.
It will lose as much as 25% of its value the minute you drive it off the lot. If you have to sell it quickly for any reason, you will likely lose money.

Used Car Advantages

Much cheaper than new cars.
Generally costs less to insure.
It will depreciate less in the early years of ownership
You can get recent models of luxury cars for a reduced cost

Use Car Disadvantages

Previous maintenance and damage may be hard to discover
No discounts for current safety and theft prevention technology
Maintenance costs can increase ownership costs significantly
No access to current technological trends