Have you ever settled yourself behind the wheel of your new car and been hit with a wave of financial regret? It could be days, weeks or even months after the purchase before the reality of the car payment hits you. By then, the damage to your budget may already be done. Whatever the reason, you outkicked your coverage. Ouch.
With average new car prices nearing $50,000, it's critical to avoid that type of financial misstep. Here are four strategies to help you make a better purchase.
1. Target the Best Deal
Today this is much easier than it's ever been. A host of websites and apps help you understand how much you should pay, including all available rebates, financing specials and other deals. Meanwhile, numerous incentives apply to those who are serving or have served. The key here is not just to get the best deal, but to get the best deal that works for you, your family and your budget.
2. Play Your Own Payment Game
The right price is part of the formula, but if you're not paying with cash, which would be a best-case scenario, you'll have to work the payment into your budget. Ideally, you should aim for a car payment or payments to equal less than 10% of your gross income.
That may eliminate a lot of car options from your menu of choices, but you'll be less likely to someday find yourself saddled with a car payment you can't afford. If you determine that a bigger slice of your budget is necessary to meet your transportation needs, ensure that it is a deliberate decision and you have accounted for the extra expense by modifying your spending in other areas.
3. Loan Term
Speaking of getting a payment you can afford, there are several ways to do that. One disturbing recent trend has been for buyers to achieve a manageable payment by extending the term of the loan. Longer, 72- and 84-month loans are now commonplace in the market. Try to avoid that approach and shoot for a loan term of 60 months or less. The longer the loan, the more interest you'll pay, and the more likely you'll become "upside down" with that loan and be driving a car that is worth less than you owe. Shorter is better, but if you have to add a few months (not a few dozen!) to make things work, so be it.
4. Account for Insurance
Even with insurance premiums rising rapidly across the industry over the past couple of years, many folks -- caught up in the emotion of the purchase -- forget to take insurance into account. Don't fall into that trap. Know your insurance expense prior to any purchase, but look at usage- or behavior-based insurance options to help mitigate the cost.
To be clear, I'm a car guy. If anybody understands the temptation to break these rules, it's me. But if you have to, do it in a way that is clearly accounted for in your plans and in a manner that ensures you won't be hit with a major dose of financial regret. Good luck!
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