Setting A Budget For Your New Car

On Tuesday, January 16th, 2018

When it comes to buying a new car the price ranges from just a couple of hundred dollars right up to hundreds of thousands. I think we can probably rule out the top end of that scale for most people but there’s still a lot of difference between the cars out there right now. It’s important that you know your exact budget before you set foot on a car lot because if you go in there with a blank check, you can be sure that the salesman will pump you for all they can. But how are you supposed to work out whether you should spend $1000 or $10,000 on a car? This simple checklist should help you arrive at a number.

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Financing Or Buying?

This is the first decision you’ve got to make, are you going to buy the car outright or are you going to finance it and make monthly payments? If you’re buying it outright then you’re obviously more limited. Chances are that you need another car right away if the old one is out of action so you can’t afford to sit around for a few months and save up. That means your budget is limited to whatever you’ve got in your savings account right now, which makes things a little simpler. However, if you’re financing, it can be difficult to know where to set your top limit. There is a rule that people tend to follow here; the rough amount of money you should spend on monthly payments is around 10 percent of what you earn. So, if you make $1500 a month, get a car that has payments of about $150-$200. That way you know you can afford it.

As well as financing the car, you could always take out a loan to buy the car outright and then make repayments on that. It’s worth checking the rates on some loans to see whether that would be cheaper. If you have a bad credit score, you can still get a guarantor loan as long as you’ve got somebody willing to vouch for you and pick up the repayments if you can’t afford them.

New Or Used

You’re probably thinking that if you want to reduce the amount you’re spending on a car then go for used instead of new, but it’s not that simple. It’s true that if you buy a used car it’ll be cheaper than a new one, but what about repairs? The used car is far more likely to need regular work on it which could end up costing you a lot of money, making the overall price higher than buying a new car. However, if you know your way around a car and you can do a lot of those repairs yourself, it’s a good option. But if you’ll have to call a mechanic every time, it’s better to go for a brand new car. The other benefit of getting a brand new car is that, if you lease it, you can get an upgrade every couple of years.

The 10 percent rule is a good way of getting a general idea of how much you spend on your new car but it depends on your financial situation and whether you want new or used.

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