If you want to purchase a vehicle, but are unsure about your credit, financing options or budget, take the time to set your budget and method of payment before shopping for a car. This way, you can shop by your budget to purchase a car you can comfortably afford.
Setting a Budget
To avoid various financial issues that can result from an unorganized car purchase, set a budget for yourself and stick to it while shopping. Go over your monthly bills to determine how much money you have left over to comfortably spend on a vehicle payment and various costs of vehicle ownership, such as maintenance, insurance and gas costs. The money you have left over each month should not be used for a car payment alone, but the total cost of car ownership.
Extra Vehicle Costs
Finance or lease contracts require collision insurance on the car during the contract term. Collision coverage is expensive compared to state-required liability policies, so budget accordingly. Obtain insurance costs before you purchase a car. Depending on your driving and driver's license history, your monthly insurance payment can equal or exceed the cost of a monthly finance payment. Also check the cost of maintenance by contacting a service shop to obtain pricing of the vehicle's maintenance schedule. Check fuel economy at Fueleconomy.gov to figure out the price of fuel costs.
Monthly Loan or Lease Payment
If you have concerns about your interest rate or other loan issues, obtain a pre-approval before you choose your car. If your auto loan provider requires a down payment or restricts your term, you'll be well prepared to adjust your price range before shopping. Once you're pre-approved, you'll know your interest rate, which affects your monthly loan payment. A lending representative can help you to determine a price range based on the payment you can afford. If you're declined for a loan pre-approval, you can take the time you need to find a co-signer or fix your credit before you pursue a car purchase.
Warranty
Don't limit your car options because of a vehicle warranty. While purchasing a vehicle still under factory warranty may seem like a money-saving option, you can also buy an extended warranty for vehicles outside of the factory warranty period. Dealerships, insurance companies and aftermarket providers sell warranty coverage, which may open up your vehicle choices. For example, a vehicle still under factory warranty coverage may cost $15,000, while a higher-mileage option may cost you $12,000 when including extended warranty coverage.
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