Looking for a new car? Before you go and buy a luxury SUV with the fanciest trim, take a deep breath and think about your budget. You may be able to afford the monthly payment, but what about fuel, insurance and maintenance costs? Whether you are buying a brand new car or a used one, here’s how to figure out which car fits your budget like a driving glove.
Financing your next car
To get a better idea of what kind of car you can afford, compare financing options from various lenders; there’s an option for every credit score and financial situation. After you know the kind of loan you qualify for, budgeting for your car payment will fall into place.
The car payment
Unless you pay for your car in cash, you’ll repay a car loan over time in monthly installments. The monthly car payment is determined by the loan amount and how long it takes you to pay it back over time. The loan is also influenced by your credit score and current interest rates. Your monthly payment will be lower if you can pay for part of the car upfront, otherwise known as a down payment.
Other costs
Owning a car is more than just the monthly payments. Costs for maintenance, fuel, insurance, annual registration fees and parking should be calculated into your vehicle budget as well. Do you get a lot of speeding tickets? Put those in there too. All of these costs plus your monthly payment make up your total car budget.
Auto insurance
There’s no getting out of this one, as most states require auto insurance in order to register your car. The price of your insurance, known as a premium, depends on your car, your driving record, your age and the type of coverage you buy. You may want comprehensive (and expensive) insurance for a new vehicle and just liability for an older one. And drive safely! A squeaky clean driving record will help you, as rates go up with the more violations you have.
Maintenance
The good news about car maintenance is that it usually pays off in the end. Keeping up on oil changes, alignment checks and new brake pads will not only keep you safe, it will extend the life of the car. Money well spent. But major repairs can be spendy and eventually your car may need a new transmission. You can prepare for inevitable repairs by calculating them into your monthly budget. How much you dedicate to maintenance and repairs depends on the condition of your car. New vehicles won’t need much maintenance whereas an older one may need more TLC.
Fuel
Can you afford the fuel for your car? Gas prices fluctuate so it may be difficult to calculate precisely, but give it your best shot. You’ll want an idea of what to budget for monthly fuel costs. Long-distance drivers should look at commuter vehicles that get great gas mileage. Trucks and SUVs tend to get lower gas mileage and will be more expensive to fuel. Electric and hybrid cars are generally less expensive to power, but may cost more upfront.
The affordability sweet spot
How much should you budget for a car? The consensus is that car expenses should not exceed 10% to 15% of your total income. So if you bring home $4,000 per month, then $400 to $600 can go toward your vehicle. This percentage isn't set in chrome, however. You could spend more on a car if your housing expenses are low. The important thing is that you live within your means and get a car that won’t be financially stressful for you.
Find your next affordable vehicle on KSL Cars. From used commuters to new SUVs, KSL Cars has one that fits your budget.
