Car shopping? How to spend within your means

Is there anything sweeter than a brand new ride, with gadgets and complete with the new car smell? The potential debt you are looking at when car shopping can reduce the fun factor. Before you even hit the showroom or cruise the internet to research makes, models and pricing, you’ve got to do the most essential part of your car search.

Figure out how much car you can afford.car shopping

  • More people are car shopping. According to the Financial Consumer Agency of Canada, 1.9 million new vehicles were purchased in 2015, a new high.
  • They say that the auto finance industry has doubled in the last eight years. More Canadians are taking out 72, 84 and 96 month loan terms, as opposed to 60 month terms, which used to be the norm
  • According to TransUnion, Canadian auto loan delinquency rose 10 per cent in 2015, which is the highest level seen in four years

“The auto loan industry in this country has absolutely ballooned over the past few years, with low interest rates and extended loan terms luring in more customers,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

“Buying a car is exciting and salespeople will try to sell you more car than you really need by appealing to your emotions. By the same token, they make auto financing easily available, making spending the extra money even more appealing, but really isn’t when you consider how long it will take you to  pay off that car,” says Schwartz.

Start with your budget

Set up your household budget to reflect a car payment that is reasonable and leaves lots of wiggle room in other areas of your budget. And when you are setting up payment scenarios, don’t extend them over 60 months.  Even though that means a larger payment month to month, extending that loan longer than five years is an invitation to debt trouble.

When setting your budget, don’t forget to include other monthly costs associated with your car in addition to the loan, like gas, parking, maintenance and insurance. Remember, once a car reaches a certain age, and mileage, you will be responsible for the cost of the repairs.

Car repair savings

Make very sure to have a cash reserve set aside for car repairs. Over the years, you will most certainly have to pay out for car repairs, and depending on the job the cost can be substantial. If you don’t have cash on hand, you may be forced to turn to your credit card for repairs, increasing the total amount of debt you’re taking out for your car.

The negotiator

Because you’ve done your research and taken time to set a car budget, you know what you should pay for a car. Car prices are always negotiable, so don’t be afraid to try to negotiate the price down.

Don’t be tempted to go over your budget in a negotiation situation. Keep your emotions in check, and let your budget be your absolute guide for price limits.

For additional tips to buy a car within your means go here.

Don’t let debt drive you down.  Are car payments getting too much to handle with your other expenses and debts to pay? Steer away from your debt by taking real steps towards paying it down starting today. Contact one of our trained credit counsellors at or visit our free online debt analysis.

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Shivani Karwal
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pr@consolidatedcredit.ca
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