Purchasing a new car should be a fun and exciting time, but if can quickly become stressful if you don’t properly prepare. By taking the time to thoroughly understand what all goes into your budget for your new car, you’re going to set yourself up for success. There’s much more than simply the purchase price when you’re purchasing a new vehicle – here are five things to consider when setting a budget for your new car.
Total Cost of Ownership
When you think about the cost of a car, the first thing that consumers think of is the initial purchase price of the vehicle, and rightfully so. However, it’s important to look at the cost of your vehicle in a broader scale. Assessing your total costs over the life of the vehicle can help determine which vehicle is right for you.
You may be tempted to go with the vehicle with the lowest overall purchase price or the lowest monthly payment, but that may not be a smart financial move in the long run. If your choice is between a less expensive, older car or a more expensive, newer car, you may end up spending more on that less expensive car in the long run. Things like service costs, fuel efficiency and insurance all play an important role in the overall cost of your vehicle – an older vehicle may require more regular maintenance and use more fuel which can add up quickly.
Understanding financing terms is one of the most important pieces of budgeting for a new car. You shouldn’t even start the car buying process until you know what you’re approved for and what that means in terms of interest and payments. Even a slight increase in the interest rate can mean a lot more money over the life of your car loan.
Factors that impact the interest rate on the loan include things like how new the car is, how many kilometres are on the car, your credit history, and if you’re putting a down payment on the car, to name a few. You may also be tempted to lengthen the life of the loan so the monthly payments are lower – this usually ends up costing you more money in the long run. As the loan term gets shorter, the interest rate usually gets better. The golden rule for understanding financing is to never shop for a vehicle only based on the monthly payment price.
Similar to the total cost of ownership, we wanted to bring up insurance because it is an additional monthly cost of the vehicle that many people may not think about when they’re purchasing a new car, especially consumers who are first-time car buyers. Shop around for the best insurance rates. Understand that a newer vehicle is typically less costly to insure, so while the initial purchase price might be higher for a new vehicle, you’ll see significant savings in your monthly insurance cost.
Don’t forget to consider the way your insurer treats your new vehicle in the unfortunate situation you have an accident and it is written-off. Do they offer a total old for new replacement? What is the time period 2 or 3 years? This can make a significant financial difference in the cost of ownership when it comes time to sell your car.
You should always consider the cost of fuel when you’re purchasing a vehicle – there are some vehicles that are much more fuel efficient than others, and your yearly cost of fuel can vary greatly depending on which vehicle you purchase. Always include your fuel costs in your monthly budget, and make sure you’re aware of the vehicle fuel economy when you’re looking at cars to purchase.
Get an Advocate
If you’re unsure of what you need to do to get the right car at the right price for your next vehicle, contact the advocates at My Next Car Buying Advocacy. They will help you identify what is the best car for your needs and budget. Then source the matching car, negotiate and buy it on your behalf. Taking the hassle out of the buying process for your next car so you can get back to doing the things that are important to you.