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Did you know that a new car loses value by 10% by the time you drive it off the lot? At the end of the first year, your new car will have lost 10 to 20% of its value.
This isn’t meant to discourage you from buying a car. Rather, it’s meant to encourage you to think long and hard before buying your first car. You’ll be losing money on it – make sure it’s worth it.
Read on for some tips you need to see before you buy a car. Learn what the rule of thumb for buying a car is and more below.
1. Set a Budget
First, determine how much you can realistically afford. The rule of thumb for buying a car is you shouldn’t spend more than 10% of your gross annual income. This is the 1/10 rule.
That means that if you earn $30,000 per year, your limit on a car should be $3,000. That should already include insurance and gas.
It isn’t much but this rule is in place to keep first-time buyers from making a mistake. People tend to think they have more money than they have, after all.
However, you don’t have to follow it if you find the car that you need costs more. Do a little calculation to see how much you can afford in actual.
First, calculate your living costs, including rent or mortgage and food. Factor in your debt or anything else you’re paying for monthly. Don’t forget to have savings.
What’s left is what you can spend on gas, insurance, and car payments. But, it doesn’t mean you should spend it all.
It’s also a good idea to put as much down payment as you can to lower the monthly costs. You can save up for a few months first if you want. You’ll pay less interest, hence a lower total for the same car.
2. Evaluate Your Needs
Knowing what you need will help you find the right car for you that’s within your budget. Buying a car, after all, isn’t always a luxury. Most of the time, it’s a necessity.
Ask yourself, what are the reasons you’re buying a car?
Is it for the simple reason of getting from home to work due to the lack of commuting options? Is it for traveling to other cities for work? Is it for dropping off all your children at school before you head to work?
These alone can help you find out what you need.
For the first one, you don’t need much more than a regular car. For the second one, you need a sturdy car with great gas mileage with enough room for your bags. For the third one, you need a car with enough seats for all the members in your household.
Don’t forget to account for other features, like an all-wheel-drive for snow or a heated steering wheel.
Only after you list down what you need can you consider your wants. These are things like a touchscreen, leather seats, rear entertainment screens, and such. You can live without these, but if you can afford them, there’s no reason to deprive yourself of these.
3. Pick a Car
Now that you have a budget and a list of your needs (and wants), it’s time to do your research and find a car that fits all your criteria. If you have a preferred brand, check out what they have first, but don’t dismiss all your other options.
Researching has never been easier – simply go on the internet and look for cars available in your state. You can also go to a local dealership so you can have someone help you pick a car.
Consider Buying a Used Car
Buying used trucks and cars has its cons, but it can help you save money if you have a limited budget. It’s a solid alternative when you don’t have enough to buy what you need or even what you want. Your budget might only be enough for the average cost of a used car.
You have to learn how to spot a good car, though. Many dealers try to hide the real condition of a used car to sell it at a higher price. Bring someone with you who’s knowledgeable about cars to avoid getting duped.
4. Secure Financing
Before you go to a dealership, though, it’s best to secure a loan first. Shop around and get pre-approved before you head out.
This might seem counterintuitive, but empowers you to say no to whatever the dealership offers you; besides, it’s better knowing you always have a better option. You can always get better rates elsewhere, but if you go to a dealership first, you might get pressured into a subpar loan.
It also gives you a pretty good idea of how much you can afford. Some agents will manipulate the numbers to make it seem like you can afford them now. They may extend the financing loan term to lower the monthly rates, but you’ll end up paying thousands of dollars more.
If you have a pre-approved loan, you’ll have a much better hold on your finances.
5. Take a Test Drive
Always test drive a car before buying it. Do this for all the cars in your shortlist.
It might help you discover which ones don’t fit your driving style at all. There are also a lot of variables that can drive your buying decision – the seat height, outward visibility, control layout, and so on. These all factor into the whole driving experience.
6. Buy Insurance
Never drive your car without getting insurance first. Read up on the minimum requirements in your state to see what type of insurance you should get.
Contact a local agent to help you with this part. They may also be able to help you shop around for the best rates. Whatever you choose, though, don’t underinsure.
The Rule of Thumb for Buying a Car: Enjoy the Process
Buying a car for the first time is always an exciting experience. It’s something you won’t experience ever again, so make sure to enjoy the process, too. At the same time, don’t lose sight of the important things like the rule of thumb for buying a car, the numbers, and your needs.
Of course, there are more factors to consider when getting a vehicle. The good news is we’ve got a plethora of guides right here for you. If you need more tips, check out more of our auto and motor guides right here.