How to determine if you can afford a car?
Who wouldn’t like to own a car? We get envious when we see our friends cruising along in their own car or smartly dressed working professionals driving to offices, because we wish to do the same! Thanks to easy loan schemes and low interest rates, this has been a dream come true for many, but the process isn’t as easy as it looks.
Can you afford the vehicle?
First and foremost, you have to chalk out a budget. You might have sufficient cash at the moment to cover the entire purchase, but that doesn’t mean you walk into a showroom and buy a car like purchasing groceries. What happens when you realize that there are other payments to be cleared but you don’t have the money since you used it to buy the car! You need to think and then act, because buying a car is a long-time investment and you can’t make mistakes. To put it in a nutshell, you need to be 100% sure that you can afford it.
Jot down each and every expense that is incurred during a month. According to several experts, you should allot a maximum of 20% of your monthly income when it comes to car payments, which includes insurance and cap payment. You can use calculators for this purpose as well. But the 20% formula isn’t for everyone – especially students who face financial constraints.
You have to consider the interest rates while mapping the budget. Do you have a decent credit history? If yes, then there is no cause for concern as such, but people with poor credit rating can find themselves in a fix if they have to pay a huge amount just to clear the interest. High interest rates don’t leave you with many choices in cars and you might have to settle with a model that you don’t want. The time of the year also plays a crucial role in this case.
The down payment is also a vital factor to incorporate into the budget. A few years back, most places would require a down payment, but this rule doesn’t apply to auto dealerships any more. The concept is – the more you can pay the better.
It is best to seek the advice of a financial expert in this matter, since they are well-versed in the ins and outs of this field. If you have used a calculator, provide the figures to them and ask them for suggestions on how to proceed further.