When I bought my car 12 years ago, it was a gently used vehicle with about 18,000 miles. My commute to work is short, and I only put about 6,000 miles on it a year. It has low mileage and is in excellent condition for its age, and I may hold onto my car for another year or two. Yet, car shopping has been on my mind lately.
Car shopping has always been challenging. It is even more so in the current economy. Let’s examine what a buyer in today’s economy is facing. The inventory of car dealerships is lower than usual, interest rates are high, and the prices of new and used cars are higher than before the pandemic. According to Experian, the average cost for a new car is $48,000, and the average monthly payment for a new car is currently $729. If you are considering a low-mileage used car, the average price is $27,000, and the average monthly payment is $528. Car ownership costs are estimated at $300 per month, based on current gasoline prices and driving an estimated 15,000 miles per year.
Before starting the search for a new car, it is crucial to plan ahead.
First, you must review your budget and determine how much you can afford to pay for your next car. Include the total costs of owning your car in your budget, including insurance, property taxes, fuel, and repairs. Edmunds Car Affordability Calculator is a great tool to help you determine the price of the vehicle within your budget based on the payment you can afford. Generally, your car payment and insurance should consume no more than 10% of your gross income, and your total car costs should be no more than 12%.
Once you know how much you can afford to pay for your next car, you can use these steps to help you find the right one.
- Research affordable options before you leave your house. Have a good idea of the models of vehicles you can afford and plan to test drive.
- Cast a wide net. Check with multiple dealers, as well as online. Be willing to spend more time than you usually would to search for the right vehicle.
- Buy a reliable vehicle. Take any used vehicle to your mechanic to be inspected before purchasing.
- Be willing to compromise on features that you might like but are unnecessary. Know which features are essential and which you can live without to stay within your budget.
- Minimize your monthly payment by saving up to make a significant down payment.
- Pre-arrange financing with your bank or credit union. Check with your lending institute to determine the best rate they will offer you. Knowing the interest rate will allow you to accurately calculate your expected payment based on the price of the car you seek. When you invest the time and research in advance, you can confidently accept or reject the dealer’s rate.
A crucial element in making sound financial decisions is to plan. If your car is older, now is the time to set aside money for a future down payment. You will lower your monthly payments with this one step. When your car leaves you stranded, and the repair price is overwhelming, you will feel pressured to buy a car. The temptation to quickly buy a car without researching can lead to regret.
Making wise financial decisions helps you live within your budget and reduce stress. My book Honoring God with Your Money is a great resource to help you better manage your money. Sign up for my quarterly newsletter for even more tips.
Susan's Reflections 