By Alberto Frammartino, August 23, 2022
How much should you spend on your first car? Are you ready to buy your first car but aren’t sure how much money you should spend on it? Figuring out how much money you should put toward a new car isn’t a one size fits all thing, and we are going to help you figure out the right answer for you.
Continue reading this article to learn how much money you should spend on your car and best practices if you need to borrow money for a car loan.
1. Don’t Let Your Emotions Take Over
It is easy to let your emotions take over when you’re choosing a car. You see a vehicle that looks exactly the way you want it to look, and you can already see yourself driving down the road in your shiny new toy.
If you go into a dealership to look at a vehicle, it’s going to be even worse. Not only do you have to fight against your own thoughts, but the salesperson is trained to make your emotions go wild.
They will start out by letting you test drive vehicles they think you’ll like, even if they aren’t in your budget. They will talk about how your old car isn’t as good as the car you’re going to buy, and before you know it — you’re ready to sign on the dotted line for a car you can’t afford.
You can avoid impulsive decision-making when buying a new car by researching before visiting a showroom. It’s advisable to check online resources, such as car review sites and videos that compare different models of your prospective vehicles. Check a particular car model for its fuel efficiency, engine performance, affordability, and other relevant factors you want to consider.
Once you visit a car showroom, you already know the type of vehicle that’s best for you. Prepare yourself by anticipating a sales talk from the representative or manager. Remind yourself that it’s still your decision. So, don’t get pressured. If you want to consider a deal, you can go back tomorrow to have time to think about it.
2. Take All the Costs Into the Equation
When you’re figuring out how much you should spend on your first car, the cost of your car goes beyond how much you pay for the car. There’s also the cost of maintenance, fuel, insurance, and unexpected repairs.
If you don’t have a good driving record, your insurance could account for a large chunk of your car cost each month. Even with a good driving record, car insurance can be a heavy burden to bear if you don’t calculate it into the cost of your car.
3. Give Yourself A Trial Run
Before buying your new car, the easiest way to see if you can afford it is to give yourself a trial run.
Determine how much the monthly payment will be for the new vehicle you’re buying, the cost of fuel, insurance, and maintenance, and pay it for a couple of months. Put the money that you’d be paying into savings or toward a down payment, but you won’t be allowed to use it.
When you do this, you’ll be able to see if you can handle the payments and other responsibilities for your new vehicle. If you find it is too much of a burden, you’ll need to find a less expensive vehicle that is going to make it easier for you each month.
4. Do You Need A Loan?
If you aren’t going to pay cash for the car of your choice, you’re going to need a loan. If you don’t have a credit history, you might need a co-signer.
A co-signer is someone that commits to taking responsibility for your debt if you default on it. Your co-signer needs to have enough credit to qualify for your debt on top of their debt.
Buyers have several options for securing loans for brand new cars. For instance, new car loans promise to provide seamless car buying. Car buyers can process their loan applications online. Choose a loan provider that doesn’t apply ongoing, monthly, or annual fees. If you get a fixed car loan, choose a loan provider that can offer balloon repayment to help reduce your regular payment amounts.
You can see if you pre-qualify for the car you want before you even step into a showroom. Knowing if you qualify for a loan for a car will allow you to negotiate confidently since you know you can afford the vehicle you’re looking at.
5. How To Get The Best Loan Rates
If you get a good rate on loan, you’ll have to pay less money on your car each month. You don’t want to stretch your car loan out too far to get a lower payment, but a lower interest rate can help you get the monthly payment you need.
Lenders give low-interest rates to low-risk borrowers. If you have a good credit score, you’ll get a better rate than someone that has a credit score that is lower than yours. Even a couple of points can make a big difference if it takes you out of the good credit range into the fair credit range.
6. Pay Your Bills on Time
Paying your bills on time has a major impact on your credit score because it shows lenders that you will keep up with your part of the deal. Even one late payment can put an unwanted blemish on your credit report.
If you forget to pay your bills on time, you can use automatic payments to make sure your bills are always paid on time. As long as you keep enough money in your bank account, this is the easiest way to avoid negative marks on your credit.
7. Keep Credit Card Utilization Low
The higher the percentage you use on your credit card, the worse it is on your credit report. High credit card utilization hurts your credit score because it looks like you are desperate for credit, and you may be at high risk.
8. Pay Down Debt
Lowering your debt gives you a lower debt to income-ratio. A low debt-to-income ratio is a good sign to lenders that you’ll be able to pay back your debts.
How Much Should You Spend On Your First Car? – Now You Know
Now you have the answer to your question, “How much should you spend on your first car?”. It’s time to start looking for the perfect car for you and your budget.
First-time buyers should get pre-approval for a car loan before visiting car dealerships to choose the right car within their financial capability. Finally, before you sign any car loan agreement, read the terms carefully.
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