Car Shopping Considerations

When it comes to vehicles, there are hundreds of makes and models to choose from. While you don’t have to know exactly what car you are going to buy before you start shopping – it is a good idea to do a test drive before making a final decision – but try to narrow your list down to a few options.

Consider:

• Your needs: Think about your transportation requirements. Does your vehicle need to be large enough for a family of five or small enough to fit in tight city parking spaces? Tough enough to haul firewood or chic enough to drive clients around?
• Your wants: Most of us want at least a few extras that we don’t really need. You don’t have to buy the cheapest, most basic car, but just remember that you may not be able to afford everything you want.
• The safety and reliability of the car: You probably want a car that will protect you in an accident and not break down every day. Research what cars rank high in safety and reliability. (Consumer Reports and car-oriented magazines regularly report on this topic. You can also check cars’ safety ratings at www.safercar.gov, which is produced by the National Highway Traffic Safety Administration.)
• Your budget: The price is one of the car’s most important features. It is easy to get carried away and end up with a car that is out of your price range, but ultimately, you won’t be happy if you cannot make your loan or lease payments.

How Much You Can Afford?

The best way to avoid getting a car loan you can’t afford to pay is to examine your budget and see how much money you have available for car expenses. (Leave out the loan payments for any car you plan to sell once you get your new car.) Remember, car expenses include not just the loan payments but also insurance, gas, maintenance, registration, and perhaps parking and tolls. If you are purchasing a brand new car, your insurance and registration will likely increase. However, your maintenance will probably decrease. Whether your gas costs will change is dependent on the fuel efficiency of both cars. Factor these expected changes into your budget – you may have to estimate. If you find there is little money available for auto expenses, try to rework your budget by reducing or eliminating other expenses.

Your budget alone can’t tell you how much you can afford to borrow – you also need to know the financing terms of the loan. Keep in mind that the lender may not approve you for as much as what your budget shows you can afford. On the other hand, they could approve you for a higher amount, but it is not a good idea to spend more than what you feel you can comfortably afford.
While it is possible to buy a car with no money down, most lenders prefer that you make a down payment. It benefits you as well. The more you save, the less you have to borrow and the lower your monthly payments. To make saving easier, have some of your paycheck directly deposited into your savings account, or arrange with your financial institution to have a set sum automatically deducted from your checking account each month and deposited into your savings account.