Deciding on a New Car BudgetAuto Smarts
Take the guesswork out of car shopping with Farmers Car Shopping Series. Whether it’s finding the right car for you, estimating what you can afford, or finding the best deal, we’ve got you covered with expert advice and tips!
A new car is a major expense, and one that can take a big chunk out of your monthly income, and your savings. Too often though, many people make the mistake of buying a more expensive car than they can comfortably afford-- and find themselves with a car payment they can’t keep up with.
That’s why, if you’re in the market for a new car, it’s wise to create a realistic budget and stick to it.
Here’s how to estimate what you can really afford.
Knowing Your Price Range
Your price range doesn’t have to be a precise number. It should just represent the lowest and highest prices you’re willing to pay (or could afford).
If you’re looking to finance, there are two numbers to consider:
• Monthly payments – Estimate what you could afford as a monthly payment (including interest built in for financing).
• Selling price – Estimate the ideal price range for the final out-the-door price (including fees and sales tax) you’re willing to pay for a vehicle.
(If you’re planning to pay cash for the car, there’s no need to worry about monthly payments. Simply calculate a price range that makes sense for your financial situation and won’t put a financial strain on you and your family.)
6 Tips for Sizing up Car Costs
- Know Before You Go:
It’s always a good idea to have a general idea of your budget before you visit the dealership. Decide if you’re going to finance or not, the maximum monthly payment you’re willing to make, and take into account all your other existing expenses. That way, you’re prepared when the salesman starts talking numbers.
- Know How Long You’d Like to Pay:
Next, decide the maximum number of months you’d like to make payments (typically, over three (36 months) to five years (60 months). Then when you research new car prices, divide the car price by your preferred loan term, and see if that number falls within your monthly price range.
- Use Loan Payment Calculators:
A good rule of thumb: The car will cost about $20 a month for every $1,000 financed on a 60-month term (for buyers with good credit). Loan payment calculators can also help you estimate your monthly car payment with interest factored in.
- Know the Total Selling Price:
When you visit the dealership to purchase the car, we strongly recommend looking at the total selling price and not the monthly payment. What may seem like a low monthly payment could actually get extended over several months to accommodate what ends up becoming a much larger total purchase price.
- Know How Much You Can Put Down:
Let’s face it: no one likes to pay a large amount of money upfront. Your down payment can help lower your monthly payment though. That’s why it’s a good idea to put down at least 20 percent of the selling price.
- Balance Time and Money:
Keep in mind that choosing a lower monthly payment means you’re paying the car off for a longer period of time, while a higher payment means you can pay the car off faster and it is more quickly owned by you, not the bank.
Are You Ready To Shop For A New Car?
As most people know, the Manufacturer’s Suggested Retail Price (MSRP) on most vehicles is just a starting point. Car costs can extend far beyond the sticker price.
No one wants to overpay for a car and with TrueCar’s Price Curve and Market Analysis you should have some helpful information so you don’t pay too much. To get a better idea of what a particular car costs by make/model and down to the trim and options, visit the Farmers Car Shopping Service offered by TrueCar to learn more about the cost of a vehicle you are interested in purchasing.
The information contained in this page is provided for general informational purposes only. The information is provided by Farmers and while we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to this article or the information, products, services or related graphics, if any, contained in this article for any purpose. The information is not meant as professional or expert advice, and any reliance you place on such information is therefore strictly at your own risk.