Getting a car has many perks from convenience to freedom of movement, comfort, and safety but it can have a serious financial strain if you are not ready for that purchase. With this, it is important that you learn how much of your income you can afford to spend on a car so you will not end up paying more than what you initially asked for.
Keep in mind that besides the monthly payments, you will also need to pay for repairs, maintenance, and gas. To help you make an informed decision, you should learn about the rules of car buying whether it is new or used cars in montclair.
Here are some few tips and the rules of car buying:
Know your financial situation
Shopping for a car is thrilling but before you hop from one dealership to another, it is crucial that you know your financial situation. This does not only mean checking your bank account. You should learn how much disposable income you have. This refers to funds left after paying monthly obligations like utilities, debts, food, school, and mortgage.
Knowing your disposable income will give you an idea of how much you have room for a car payment. After determining your disposable income, you have to ask yourself things like do you have plenty of money left for daily living without sacrificing anything or how will the car payment affect your bottom line?
Find a price range
As soon as you determined how much you could reasonably afford, you should start to research the prices online. It is easy browsing online so you can find the best discounts. Do not go to your local dealerships without a price in mind – you should at least know the minimum price so you can negotiate better.
So, what are the rules of car buying?
In determining the price range you can afford, you should look at your lifestyle and income. Here are the rules that can help you when it comes to your car buying decision:
- 10%: if you do not want to spend more of your income, you should set a 10% rule. For instance, if you make $50,000 a year, you should only spend $5,000 on a car and this will include the maintenance, purchase and gas costs. This is not feasible for many drivers but it is worth a try.
- 36%: this rule talks about keeping your total loan payments not more than 36%. The loan payments here include your mortgage, personal loans, student loans, credit card payments, and car loan. For instance, if you make $75,000 a year, your total loan payments should not take up more than $2,250 per month.
- 20/4/10: this rule is easy to remember. It states that you should put a 20% down payment on a car, finance it for not more than 4 years and then keep the payment less than 10% of your salary.
With this, you should be a wise car buyer. Take a step back first and evaluate your income and your lifestyle before committing. Your goal here is to get a car that you are comfortable paying.