Millions of people require a personal vehicle for regular transportation needs. But if you’re not careful, the expenses of owning a car can quickly add up – and compromise your financial future.
Before deciding which car to purchase or where to purchase it from, you should take the time to evaluate your personal budget and vehicle affordability. This guide will explain how to do it, and the next steps to take to find the perfect vehicle for your needs.
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Calculating Affordability
Everything starts with calculating the affordability of each prospective vehicle on your radar. Most people have an intuitive sense that they can’t afford the world’s best luxury sports car, but they can do better than a total junker from the 1970s. But where exactly do you draw the line and how do you figure out where each car stands in relation to that line?
First, take inventory of your current income and expenses. If you have a budget in place, this is the perfect time to start analyzing it. If you don’t have a budget in place, this could be a great opportunity to draft one from scratch. No matter what, you’ll want to take a look at your current income and your current expenses; Make sure to include everything you need and want on a regular basis, including your mortgage or rent, utilities, groceries, clothes, and entertainment expenses like going out to eat.
How much extra money do you have at the end of each month? Or are you barely able to make ends meet? Ideally, you’ll end up in a position where you have at least a few hundred extra dollars every month to spend on a vehicle. If you can’t make ends meet reliably, you may need to take some extra steps before you can afford a vehicle.
Next, use an auto loan calculator to experiment with various numbers and see how much you could be paying per month for vehicles of different values. For example, if you take out a loan for $25,000 and your interest rate is around 3 percent, with a loan period of 60 months, you’ll end up with monthly payments of $450. Knock that borrowed amount down to $15,000 and set the loan period to 48 months, and you’ll end up with monthly payments of $333.
In general, you’ll want to find the lowest interest rate possible and reduce the lifespan of the loan so you can reduce the total amount of interest you pay. But extending the loan period can help you reduce your monthly payments.
Use Auto Approve to refinance your car loan and lower your monthly payments with less admin and paperwork.
Auto Approve can help you secure the best refinancing deal on your motorcycle loan.
Auto Approve makes it easy to purchase your auto lease and own your car.
You’ll also want to think about the down payment you can provide. Most people try to put at least 10 percent down on a car, but you may want to aim for 20 percent. if you’re buying a car worth $25,000, that means saving up a down payment between $2,500 and $5,000.
Don’t forget about peripheral expenses that you’ll face when owning a vehicle. These include:
- Fuel. The average American driver spends roughly $3,000 per year on gasoline. You may spend less or more than that, but it’s a non-negligible expense.
- Insurance. You’re legally required to have car insurance in most areas of the United States. Even if you embrace minimum coverage, the costs can add up.
- Maintenance. Depending on the nature of your vehicle, you may need to repair it or upgrade it regularly. No matter what, you’ll need to invest in oil changes and other forms of proactive maintenance.
- Parking and other fees. You may also need to pay for parking or handle other fees regularly.
Saving Up
If you need to save up a down payment, or if you want to build up some cash to help fund your monthly payments, these are some of the best strategies to help you do it:
- Cut unnecessary subscriptions. Most people are actively paying for at least a few subscriptions they don’t really use or need. Do a thorough audit of your recent bank statements and cut any subscriptions that are no longer necessary.
- Reduce your consumption. Consider making some personal sacrifices, like going out to eat less and cooking at home more. Reducing your consumption is easier than it seems and could help you save hundreds of dollars per month.
- Pick up a side gig. Picking up a side gig could also help you supplement your income so it’s easier to save up the money you need.
Shopping Around
At this point, you’ll know exactly how much of a car you can afford, and you’ll be ready to start shopping around for the perfect vehicle. Here are some tips to help you:
- Be wary of junk cars. Sometimes, it’s tempting to buy a cheap vehicle just because it’s cheap, but you should always do your homework so you’re not taken advantage of.
- Browse a variety of platforms and channels. There are many good places to look for vehicles, including dealerships, websites, and local exchanges. The more channels you tap into, the more likely you’ll be to find your dream car.
- Network. Talk to people in your network and express your interest in buying a vehicle. Someone you know may have a lead on someone selling – and they can hook you up with a great deal.
Finding the perfect vehicle can be tricky, especially in an area plagued by manufacturing shortages and other supply chain issues. But once you know how much of a vehicle you can afford, the hardest and most confusing part will be over.
Use Auto Approve to refinance your car loan and lower your monthly payments with less admin and paperwork.
Auto Approve can help you secure the best refinancing deal on your motorcycle loan.
Auto Approve makes it easy to purchase your auto lease and own your car.
