You have used public transport for too long. You now want luxury and convenience. Or maybe you want to upgrade from your current vehicle. The current car is not giving you the service you deserve. You know the brand of vehicle you want to drive. But it is not yet time to head to the dealership. Before you purchase your new car, there are several considerations you need to make. The considerations will prevent regrets and struggle in future. Below are nine financial factors you should consider when buying a new car.
1. What are your financial goals and obligations
We are faced with unlimited needs. These human wants compete for the few resources we have. Before deciding the type of car to buy, you should evaluate whether there are more urgent expenses you need to meet. For example, if your home urgently needs repairs, you can consider purchasing a less expensive car.
2. Your financing options
If you do not have enough money, you will have to look for other financing options. For example, you can borrow a loan from your bank. Some dealers can trick you into accepting long repayment periods. Remember long repayment periods attract higher interest rates. When purchasing a car using a loan, don’t just accept the first loan offer that comes your way. Instead, evaluate different lenders and look for the best rates. This can reduce the total cost of the car significantly.
3. Your Income streams
If you are purchasing the vehicle using a loan, it is good to ensure you can comfortably pay the loan. Examine your current monthly income against the monthly installments you will be paying. It will help you see whether you can sustain the payments. Remember that if you default, the lender might repossess your car. When considering whether your income will sustain the loan, remember you will not use all your income to pay the loan. If you are paying other loans, you have to maintain a healthy debt to income ratio.
4. Your credit score
A credit score is a scale that indicates your ability to pay a loan. The credit score will affect the interest rates you will pay for a car loan. The lower the credit score, the higher the interest you will be charged. It is, therefore, essential to consider raising your credit score before purchasing a car on credit. Paying your bills on time and eliminating credit cards you don’t need are some of the strategies you can use to raise your credit score.
5. Insurance rates
Most lenders will not give you a motor vehicle loan unless you commit to taking a comprehensive insurance cover for the car. They do so because, in many instances, the vehicle is the collateral. Furthermore, most states require you to have a liability insurance cover for your car. You should move from insurer to insurer looking for the best insurance quotes. Moreover, factor the insurance premiums in your monthly budget to see if they will be sustainable.
6. The cost of ownership
The cost of a vehicle is not its price tag. Once you meet the price tag and you are given the keys, it is the start of another series of expenditures. This means that doing a price tag vs. features analysis is not enough. You will need to go a step further and analyze other factors such as the cost of repairs, fuel economy, and how often the vehicle will need service.
7. The trade-in value
If you are changing your vehicle, you can consider selling the old car to finance the purchase of the new one. Even in this, there are several options you should consider. For example, you can sell the vehicle to the dealership or find a buyer on your own. If you sell the vehicle to the dealership, it will likely fetch a lower price than when you sell it on your own. However, if you decide to sell the car on your own, you might take longer to find a buyer.
8. Non-tax depreciation
This refers to the rate of loss of the vehicle’s market value through wear and tear. You should compare the vehicle’s depreciation to the rate of reduction of the outstanding loan. At no time should the outstanding loan be higher than the car’s market value.
9. The flexibility of the payment options
If you are purchasing the vehicle on credit, you should buy from the dealership that gives you the most flexible repayment terms. For example, the ability to vary the repayment frequency.