Buying a car can be both an exciting and daunting endeavor. It is a very large investment and you need to critically evaluate exactly what you need (and why) when buying a car.
Below we’ll take a look at all the things you need to consider when buying a car, as well as some handy tips that give added insight as you weigh up your options.
What Are the Questions I Should Ask Myself When Buying a Car?
Do I need or do I want a car?
This is the first thing you need to ask yourself because wanting a car and needing it for essential travel are two different things. Needing a car to earn an income or go to school make it an easy decision.
Wanting a car is something completely different. If you want a car and money isn’t an option, then there is nothing stopping you. If money is an impediment, however, then you need to re-evaluate your priorities.
The best way to start is to draw up a budget {INSERT LINK TO HOW TO BUDGET ARTICLE HERE} to establish just how much disposable income you have. People often think they know how much they can afford until they add all the costs in addition to the monthly installment or outright purchase.
Should I buy a new or pre-owned car?
The case for a new car
Buying a new car is very appealing. Even though previously-owned cars might be cheaper, you’ll often come across financing options for new cars that make it worth considering.
Some franchises might offer better interest rates and discounts on financing or insurance. You might be surprised how a few percentage points can make a huge difference in your installment payments, and this will not always be an option with a used car.
Also, keep in mind that new cars often come with warranties and service plans. This greatly reduces your maintenance liability and gives peace of mind if something goes wrong.
The case for a previously-owned car
Depending on your budget, buying a pre-owned car might be a more sensible option. They cost far less than new cars, and if you buy wisely from a reputable dealer, it might come with a warranty and service plan, although this is often at an extra cost.
According to CreditKarma, it is crucial to do your homework on extended warrantees—there might be a long list of exclusions you need to know about. They argue that to safeguard yourself in this instance, refer to the buyer’s guide and see if these exclusions are frequently reported issues.
The only thing to keep in mind would be the purpose of your car purchase. If you need to drive long distances and greatly depend on this car, then a used car with a lot of mileage might be cheap now but troublesome later from a maintenance point of view.
How do I know I can afford to buy a car?
Ask yourself, “what do I currently spend on transport?”
If you already pay for public transport or you already own a car, ask yourself what the difference will be in your monthly expenses if you decide to buy a car. Draw up a budget and crunch the numbers.
Also factor in how much (if applicable) you might be able to sell your existing car for privately or via trade-in at the dealer. Dealerships will often give you a better deal on your car if you buy a new one from them.
Consider this when budgeting for a car:
I do not own a car and use public transport
Here you need to go back to the need vs. want argument. If you need a car because public transport is not reliable, convenient, or available then it makes sense to buy a car.
If you have public transport to service your travel needs and a car is merely a luxury, then it is obvious that this is not an essential purchase.
I already own a car, but it constantly breaks down
Here you must determine if buying a new car will eliminate the cost of regular repairs and provide you with a more reliable means of transport. If you need the car to ensure you get to school or work on time, then it makes sense to get something new.
Another thing to consider is fuel consumption, maintenance, and other related costs. Often people will drive older or larger cars that are expensive to maintain and are not as fuel-efficient as newer or smaller models.
Ask yourself, “what car can I realistically afford even when I have unforeseen expenses”
We all want to drive a car that gets us from point A to point B and makes us feel good too. You need to be realistic about all your living expenses and factor in enough money for savings.
Life has a way of throwing unexpected expenses your way and this might impact your ability to meet your monthly obligations to repay the loan amount (if applicable).
Also, try and save up a deposit when buying a car as this reduces your liability and if you need to sell the car, be less likely to land up with a shortfall.
Tips and Tricks When Buying a Car
Be sure to ask for a better interest rate if you finance your car
This is one of the best-kept secrets. If you have a great credit record, financial institutions are often willing to give you a better interest rate if they deem you a low-risk borrower. You do however have to ask for it. Clear Score gives some great tips on simple things you can start doing now to boost your credit score.
Try not to take a repayment period that is too long
Cars are depreciating assets and quickly lose value. Some people are enticed with the low monthly installments when the term of the finance agreement is longer, but this might not be wise in the long run.
Most financial institutions offer finance deals between thirty-six and seventy-two months. If you are not going to do long distances and you want to drive this car long after it has been paid off, then this shouldn’t be a problem.
Car insurance is more expensive the younger you are
Insurance companies will always measure the risk they take. In general, the younger you are, the less experience you have, and statistics have shown that drivers between sixteen and twenty-nine-years old are more likely to be involved in an accident.
One option to consider is to allow a parent or caregiver to buy the car, register it in their name, take out insurance, and then add you as a designated driver. This is entirely dependent on your circumstances, but a good alternative if this option is available to you.
