Before you stretch your budget too thin, make certain you can afford any auto loan you take out. Auto loans are tracked on your credit reports, so you cannot take any chances. If you don’t make your payments on time every month, your credit score will take a hit, and you’ll find it difficult to secure additional lending for other needs at a later time. Rebuilding bad credit is also tough, but it’s an uphill battle you can avoid if you’re smart with your finances.
Assess Your Financial Stability
There is much more than a yes or no answer to the question of whether you can afford to buy a car or truck. When looking at your budget, you must ensure you have enough to cover your vehicle payments, your auto insurance payments, any maintenance required, and extra should the automobile break down or to cover extended warranty payments. You can save a lot of money when you compare auto insurance quotes in your local area using a free online service. Yes, there are plenty of financers and insurance agents who help people get into and drive cars at affordable rates, but don’t simply dive in head first.
Sit down and look, really look at your finances. Calculate all of your current monthly expenses and then add in a cushion for each expense. For example, if you pay on average $400 each month for groceries right now, make it $500 to account for inflation and additional unexpected expenses. Do this with everything and be realistic. Chances are your cable bill won’t go up $100 in one month, but you may find the company increases your rate by $25 after an initial period.
In fact, if you are under temporary contracts for special deals, such as those with cable companies, mobile phone providers, and audio/video streaming services, check out each one to find out exactly how much your rates will increase once the discounted period expires. Once you have gathered and accounted for all expenses and the necessary cushions for each budget line, see what you have leftover to spend on your new or used vehicle.
It’s Time to Shop
Armed with the money you can spend and a cushion for savings, look at cars you can afford and make a list of the make, model, year, and any special features they have. Most online auto websites have payment calculators, so you can easily figure out how much the monthly payment and interest rate will be for each vehicle after your down payment. Again, don’t stretch yourself too thin; this is a recipe for disaster. You need money left over to insure the vehicle, as well.
Take into account any service contract you’ll want. Will you want to have an extended warranty on the vehicle? If so, how much will that cost you? If not, how reliable is any vehicle on your list? You can search for online reviews to find out that information. You can also search to see what other owners say about maintenance expenses. Do your homework on each car or truck so you know what to expect. Protect your pocketbook!
Next, get insurance quotes on each vehicle so you can account for that in your budget, too. Depending on your age and driving record, your monthly, quarterly, or annual payments may take a huge chunk out of your finances or just put a tiny dent in them. Seek out discounts where you can get them. Many carriers offer a variety of ways to save on your insurance, including bundle packages, low-mileage discounts, and safe driver bonuses.
Keep in mind what you would do in the event of an unfortunate accident. How much deductible can you afford to pay? Are you covered if you miss work? Would you survive a lawsuit if you were at fault? For example, if you have plenty of money stashed away in savings, you can afford to lower insurance payments by agreeing to pay a higher deductible in the event of an incident. If you don’t have any savings, you won’t have the money for a deductible, so keep that expense low.
Does this seem like a lot to consider? It is, but it cannot be overstated how important it is to consider all of it. When you place yourself in an affordable vehicle that you can insure and maintain, you place yourself into a situation to build positive credit. You also give yourself the leeway you need for your other monthly expenses and, hopefully, to stash leftover cash into your savings or retirement plan.
