Buying a used car allows you to avoid depreciation, get a great deal, and find a reliable vehicle that will last – all within your budget.
Buying a new car is a big-ticket purchase that can take a huge chunk out of a family’s income. With average prices in excess of $35,000, the cost can seem out of reach for many on a fixed income.
So the question is: how much should you spend? And the simple answer is of course –what you can afford! Let’s explore how you can calculate what’s affordable for you and your particular situation.
Monthly Expenses
The biggest monthly expenses are housing and transportation. You know how much your mortgage and rent costs per month, then add in food, insurance, miscellaneous costs, and bills, so most of us are well aware of what’s leftover after the basics are met.
What Can You Afford?
How much you should spend on used cars is determined by two factors: how much you can afford(what’s leftover in the monthly budget or how much you have in savings), and the intended use of the car. After budgeting your family’s income and outgoings you should know how much you can reasonably afford –either as a down payment and monthly payment or if you have enough money, how much you can spend to buy the car outright. Calculate that amount and then look at your needs. The reasons for buying a used car determine what you should ultimately spend.
Is it for Your Commute?
So why do you need this ‘new’ used vehicle? Is it essential for your commute? Is it a teenage daughter’s first car? Is it a second car for the family to use?
Reliability
If you need this car to get to work then obviously it needs to be reliable, needs to last and therefore you should set aside more money to ensure these factors are met. If it’s the first car for a teenager, you may not need to fork out as much cash and can find a bargain, just remember that safety factors are important. You should also consider the age of the vehicle, make, and model when determining your budget. Research the most reliable cars for a commute –Honda and Toyota are well renowned for their reliability and durability. For a teenager, you want to look at safety features and choose something that’s not too flashy! If you need a vehicle for lugging stuff around, look for SUV’s or trucks. And if you’re part of a school carpool, maybe a minivan is worth looking at.
Financing or Cash?
You can either choose to finance a car or buy it outright (if you have the funds). Dealers and independent sellers alike will probably offer a discount for a full cash purchase. If you take out a loan or go the financing route, then of course you’ll be paying a bit more, including the principal and the interest. At a dealership, a simple rule should apply –give a down payment that exceeds 20% of the purchase price.
Never Finance a Used Car More than 4 Years!
The higher the down payment, the less you’ll spend on financing. And remember another rule: never finance a used car for more than four years. Any more than this and you may find yourself with a car that no longer delivers, but is still paying the same for. And lastly, never allow the car payment to exceed 10% of your monthly gross income.
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