Whether used or new, buying a car is not cheap – aside from the monthly payments, you will need to pay for repairs, regular maintenance, gas, and insurance. There’s more – the car will lose half of its value in just four years.
With these things, it is important that you make the smartest choice when it comes to spending on a car. Before you head to car dealerships in california, here’s a guide for spending on a car:
Determine your financial situation
Before you start shopping, you should determine your financial situation. Your goal here is to find out how much disposable income you have. Disposable income refers to the funds remaining after paying monthly obligations (like mortgage, debts, food, and utilities).
If you know the figure, you will have an idea of how much room you have for a car down payment and monthly payment. Keep in mind that spending will not end after the purchase because you have to consider insurance, gas, and maintenance.
Learn things about financing
If you cannot afford to pay the car in full, you should look for private auto loans. Financing is not a bad idea but you should have substantial knowledge before dealing with lenders.
You should particularly pay attention to the interest (as much as possible choose a lender that offers the lowest interest rates) and term (do not pay the loan more than 4 years). It is better to get preapproved so you will know the terms and interest before you can bargain.
Know some rules for spending on a car
You should consider your debts, mortgage, medical expenses, utilities, and food when you buy a car. By knowing such, you can identify strategies that work better for your lifestyle. The rules include the following:
- 10% rule: if you are frugal, putting 10% of your annual salary for the car should suffice. This is feasible if you only need the car getting from point A to point B.
- 36% rule: the 36% rule does not only concern monthly car payment. This 36% rule imposes that your total loan payments (like mortgage, personal loans, student loans, and credit card) should be less than 36% of your monthly salary.
- 20/4/10 rule: this rule imposes that you put down 20% on down payment and financing the car for not more than 4 years. Finally, the monthly payment should be less than or equal to 10% of your salary.
Know your car expectations
The car should fit your needs and lifestyle. Aside from that, the car should have the latest features especially with regards to safety.
Regardless of your financial situation, it is recommended that you check the prices online before you head to local dealerships near you. This is how you compare the prices so you can make a decision that is aligned to your budget.