How to plan a budget if you are buying your first car

Owning a car was a luxury at one time, but nowadays it’s just a practical necessity. Of course, it depends on where you live. Some people prefer to use the subway or other types of transportation in New York or Los Angeles. However, if your city isn’t riddled with endless traffic jams, you may prefer to use your own vehicle. It’s a comfortable, faster and more efficient choice. However, owning cars means that you must budget for it. Considering all expenses is especially important if you are buying the car the first time. That experience sometimes is so overwhelming and intimidating. Here are some tips that will help you make this process easier.

First step: set your budget

If you have a full-time job with a good salary, then you are one step ahead. However, there are other expenses, such as the cost of rent or utilities. In an ideal situation, car payment and all car expenses (registration, insurance, etc.) should total no more than 20% of your take-home pay. And don’t forget that if you aren’t buying it outright, you will have to cover down payment as well, before making monthly payments.

Second step: get preapproved before you begin shopping

Many people just head to a dealership and throw themselves at their mercy. It seems dealerships have a gravitational pull as that’s where the cars are after all. However, don’t forget that it’s pandemic out there. It’s better to do as much as possible remotely. That would mean using text and phone calls or email to shop and haggle with the dealer.

The next step, after budgeting, is to apply for a loan before going vehicle shopping. There are several reasons for that. For example, you will find out what interest rate you qualify for, discover any problems on your credit report. Furthermore, preapproval puts you in a stronger position to negotiate at the dealership as you won’t be worried about financing any more.

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Third step: decide on new, leased or used 

If you need your savings for other expenses, such as a security deposit, then leasing may be more attractive. It has several advantages, such as allowing you to drive a more expensive car with lower monthly payments, a leased car being under an included factory warranty for three years, having the option to buy the car at a predetermined price at the end of the lease.

However, there are some downsides too. For example, in case of leasing, mileage is often limited to a total of 36,000 miles over three years, and sometimes it can be as low as 22,500 miles. At the end of the lease, you could be dinged for excess wear or tear. Furthermore, after three years of making payments, you would have to either buy the car or lease again.

Thus, leasing works mostly for those who want to drive a new car every three years. In the long run, though, buying a good used car will save you much more money.

Step four: choose your car

Most people have no clear idea of what they should ask for other than a reliable and inexpensive car. But nowadays cars have so many amazing features, and due to rivalry on the market, you may be able to choose a really good vehicle for an acceptable cost if you only research the models carefully.

Thankfully, there are lots of car finder tools, such as the ones on Kelley Blue Book, Edmunds.com, or KBB.com, and you can filter them for your preferences. That kind of basic research is very useful as it puts guardrails around your search.

Step five: make your best deal

Sometimes the price is low on the website, but when you go to the dealership, they rise the sum with excuses about a whole lot of extras. However, dealers who use such tactics are untrustworthy, and it’s better not to use their services. When you buy a car, make sure that sales tax and other fees are included in this monthly payment.