A vehicle represents a major financial investment,
one that will significantly affect your
financial planning, and your monthly budget.
Before you begin shopping, take time to
carefully consider the questions below.
What Can You Afford?
Evaluate your savings, income and expenses to determine how much
money you can afford to spend on a vehicle.
- If you do not already have a budget,
create one. Do not spend more than you
earn each month.
- Make sure you are saving for emergencies
and long-term goals.
- Calculate how much money you have for a
down payment.
You should delay a vehicle purchase if:
- You spend more than you earn each month.
Gain control of your spending before
taking on more debt.
- You are not saving for emergencies and other important
financial goals.
- Your total monthly vehicle expenses will exceed
more than 10 percent to 20 percent of
your monthly net income.
Before Shopping For A Vehicle
- Know what you can afford.
- Consider all vehicle-related costs.
- Request and review your credit
score.
- Consider payment options.
How Much Will A Vehicle Cost?
A vehicle costs much more than its sales price.
You should make sure you understand all of the
following vehicle-related expenses.
| Vehicle Expense |
| "Drive-out" Price |
The negotiated sales price, minus your down
payment and the value of any trade-in,
plus tax, title and registration, plus
optional dealer products such as extended
warranties or vehicle accessories.
|
| Monthly
Payment |
A free online
vehicle financing calculator can
help you determine the monthly
amount you will pay if you finance
your vehicle. You will need to know
the total amount you will finance,
the annual percentage rate (APR) of
the loan and the term of the loan
(such as 36 or 60
months). |
| Registration Renewal |
Varies
by state. Visit your state's
Department of Motor Vehicles (DMV)
office for information. If your
state requires an annual emissions
check for your vehicle, include that
cost as
well. |
|
Insurance Payment |
Automobile insurance rates are based
on various factors including your
age, driving record, the type and
age of your vehicle and your state
of residence. |
| Other Costs |
Do not
forget to include fuel, maintenance,
annual inspections, and
repair costs. |
How Will You Pay?
Most individuals finance some or all of the cost of a vehicle through a bank,
credit union or dealership.
Financial Institutions (Lenders). As a
current customer, you may be able to get a
better interest rate than you would from
another lender or a dealership. Interest
rates are not the only point of comparison
when you are shopping for financing.
Compare the amount that the lender is
willing to finance including: the down
payment required, the loan term, grace
periods, terms and conditions, other fees
and charges and requirements such as
insurance coverages.
Does the lender offer the service of
automatic online bill payment?
The best loans are those that charge simple
interest and have a low annual percentage
rate (APR) with no prepayment penalties.
Dealership financing. Most vehicle
manufacturers and many dealerships offer
their own financing. These loans can be
tempting because they may offer low interest
rates and an easy application process. Be
cautious and read the fine print for all
terms and conditions.
Remember, whether you pay with cash or
finance, you will still need enough monthly
income to pay for automobile insurance,
registration renewals, maintenance and
fuel.
| Pay Cash When |
Finance When |
- You have saved enough to pay
for a vehicle.
- Your savings will earn less interest than
you will pay on loan interest
and finance charges.
- You have an established credit
record and do not need to
increase your credit
score.
|
- You intend to keep a vehicle
for at least the length of the
term the vehicle is
financed.
- Your loan amount will decrease faster than the vehicle
will depreciate. (You should
never owe more than the
vehicle is worth.)
- You can increase your credit
score by making vehicle loan
payments on time.
|
If you finance, you may be required to make
a down payment, although 100 percent financing
is sometimes available. Financing may encourage
you to buy a more expensive vehicle than you
should consider for your income and obligations.
When financing a vehicle, most lenders keep a
lien against the legal title until the loan
is paid in full. If you default (do not make
payments as required in your loan contract),
your lender may be able to repossess the
vehicle.
|
Buying Your First Vehicle
Auto Insurance