Buying a Car
Buying a car can be like jumping into a lake. Without some planning and research into what you might encounter, you could be in too deep before you know it. But if you take the car buying process one step at a time and put some time into researching your purchase and your finances, the process is likely to go a lot more smoothly.
What Can You Afford?
Before you begin shopping for a car, it's important to take a look at your budget and figure out how much you can afford to spend on a vehicle. If you don't have a budget, click here for information about creating one. Can you afford $200 a month for your new vehicle? What about $300? That number will be the total amount that you can pay for the car itself and operating expenses, like fuel and maintenance.
Operating expenses can be about a third to a half of the monthly cost of a new car. So take the amount you've decided you can spend on your car each month and multiply it by .66. That is the most you should consider spending on monthly payments for the vehicle to be able to afford operating expenses as well.
You're also going to need money for a deposit. How much? The bigger the better. To get a loan for a car, and often for a lease, you'll probably need to have a deposit of around 10% of the total price of the vehicle. The larger your deposit, the smaller your monthly payment will be and the less you will pay in total for the car in the long run. But make sure you don't cripple yourself or deplete your savings account by putting down a deposit that is too big.
For help anticipating your car loan payment or determining how much you can afford to spend, use our financial calculators here.