How to Budget for a Car

Are you in the market for a new vehicle? You’ve come to the right place.

Buying a car is an exciting time. Before you know it you can be driving off the car lot in a brand-new shiny vehicle of your dreams. However, a car represents a major purchase. If you’re not careful and don’t do your research, it can end up costing you a lot more than you anticipate.

A car comes with so many more costs than just the purchase price. There’s gas, maintenance and repairs, auto insurance and the list goes on. In the spirit of saving money, let’s look at some good ways to budget for a car.

Budget for a Car and Stick to it

If you don’t already have one, it’s a good idea to set up a household budget. Set a budget that includes your car payments and leaves you some wiggle room if it costs more than anticipated. When setting your car budget, don’t forget to include the other expenses of owning a car, such as gas (air conditioning and fuel economy have a big impact on this), parking, auto insurance premiums, repairs and maintenance.

When buying a car, a lot of people choose a car loan longer than 60 months; however, this can prove costly. Avoid extending the car loan more than 60 months. Even though this means a higher monthly payment, extending your car loan over five years is an invitation for debt trouble. Not only will it cost you a lot more byway of interest, you could find yourself in a negative equity situation, where you still owe debt on a car that no longer works. Don’t let this happen to you.

Get Your Car Regularly Serviced

Service your car regularly. Not only is it most likely a requirement of your car warrantee, it’s a good way to save money over the long term. By properly maintaining your car, it’s less likely to break down and cost you a lot of money.

You will inevitably spend money on car repairs eventually. Instead of going into debt to pay for them, a far better approach is to set aside emergency savings ahead of time. By having the cash on hand in a savings account, you can avoid costly credit card debt.

Save on Car Insurance

When you’re shopping for car insurance, always shop around. One insurance company may charge more for the exact same coverage as another. You’ll have no way of knowing unless you take the time to shop around. Always request quotes from at least three insurance companies.

Commit to being a good driver. That means following the rules of the road and not speeding. Since the car insurance premiums are mainly based on risk, good driving habits can reward you with lower car insurance premiums.

Are you a homeowner? If so, find out if you can bundle your home and car insurance. Many insurance companies can provide you with a bundle discount by taking out both types of insurance with them.

There’s nothing worse than getting your car stolen. However, by installing an anti theft device, not only can you deter car thieves from stealing your car; you may be able to save on your car insurance premiums, too.

Maintain a Good Credit Score

Unless you can afford to pay for a car in cash, you’ll apply for a loan. The interest rate you’ll pay on the car loan is based on several factors. One of those factors is your credit score. All things considered equal, a driver with a better credit score is more likely to get a lower interest rate on a car loan than a driver with a lower credit score. This can mean a lower monthly payment and getting your car loan paid off sooner.

Buy Used Instead of New

Have you ever considered buying a second hand car? Sixty percent of Canadians choose a used car over a new car, finds autoTRADER.ca. It won’t have the same new car smell. That being said, buying your vehicle used instead of new can be a great way to save money. A car loses a big chunk of its value the moment you drive it off the lot. According to Wheels.ca, in the first few years of car ownership, more than a dollar an hour can be pumped out of your car.

When you’re buying used, do your research. The last thing you want to do is to buy a clunker that ends up costing you more in repairs and maintenance. Consider buying your vehicle from a registered car dealer and order the history of the car to ensure it hasn’t been involved in any accidents that the owner may not be telling you about. Look for a two or three-year-old second-hand vehicle with low mileage that drives as good as new.

Negotiate

Whether you’re buying a new or used car, car prices are always negotiable, so negotiate. This is most likely one of the biggest purchases of your lifetime, so saving even three to five percent off the purchase price can really add up. Do your research ahead of time and come prepared. Don’t be afraid to mention what the competition is offering to try to get an even better price.

Although it can be tempting, don’t go over your budget when negotiating. Try your best to keep your emotions in check and let your budget dictate your price limits. If the salesperson asks you what you want your monthly to be, reiterate your total budget. Sales staff often look for ways to go beyond your budget with little tricks like that.

Shop Around on Auto Financing

When buying a car, taking auto financing at the dealership is so convenient and it’s that way by design. However, before you sign on the dotted line, be sure to shop around. Similar to shopping around on your car insurance, you can save money by shopping around on your auto financing. Shop around on rate and prepayment privileges to see if a better deal can be found.

Before you sign up for any auto financing, read the fine print. You want to make sure you’re not being charged for any extra fees, such as admin fees, which are quite common in a dealership environment.

Putting Money Down on Your Car

It’s fairly common for car dealerships to offer special $0 down incentives. While this may seem like a great deal at first glance, it can end up costing you a lot of money over the life of your vehicle. By putting less money down (or no money at all), it means that you’ll be taking out a larger car loan. As a rule, the less debt you take on to purchase a vehicle, the better. If possible, aim for a 20 percent down payment or as much as you can reasonably afford. However, don’t put every penny towards your new vehicle, as you’ll want to hold some money back to cover car repairs and maintenance that will inevitably come up.

Budget for a Car: Conclusion

There you have it, multiple ways to save money on your car. Need help budgeting for the purchase of a new vehicle? Call our offices at 1-888-294-3130 for a helping hand today.