If you are planning on buying a car, stop what you're doing and start creating a household budget. Many buyers make the mistake of purchasing the car they want first, then they have to scramble to put together a budget that will accommodate the payments. That's completely backwards. It makes more sense to know exactly what you can afford before visiting the dealership.
Getting Your Budget in Order
When planning a household budget, you need to be as realistic as possible. And when you take a moment to honestly consider what you regularly spend money on, you will probably notice expenses that can either be reduced or omitted.
- What is your monthly income? When calculating this number, consider what you make at your primary job, and all other income that you bring in every month. Do you earn extra money from a side job? Do you receive child support? Every dollar counts and should be represented in your final amount.
- How much are your bills every month? Here, you should add up all of your monthly responsibilities, including rent (or your house payment), credit card payments, utilities, child care, etc. Put the sum that you arrive at in your "expenses" column.
- What are your necessary expenses? These include groceries, gas, clothing and personal care items such as soap and shampoo. Here is where you may start to identify overspending in certain areas. Do you dine out frequently? Do you have a designer coffee or shoe-buying habit? Allocate a reasonable amount to each category when calculating necessary expenses, make a promise to yourself to stick to these numbers, and put this total in your "expenses" space, along with the total of your monthly bills.
- Get an estimate of the car payment you can reasonably afford. Add up the numbers in your "expenses" column, and subtract this number from the amount of your monthly income. The number that you arrive at is NOT what your new car payment should be - you will need to consider other non-loan related auto expenses, such as maintenance, fuel and insurance. You should always leave yourself a little wiggle room in your budget in case unexpected expenses come up, and you should be adding funds to your savings whenever possible. When estimating an affordable car payment, you should commit to a number that still gives you money to spare every month.
Staying Realistic at the Car Dealership
Once you have a clear idea about what you can afford to spend on a monthly car payment, don't let your dealer talk you into taking a deal that will break your budget. It is all too easy to be hypnotized by the latest and greatest features that come with the flashier, more expensive cars. Just remember that there's more value in the ability to live within your means than in driving around in an overly expensive vehicle.
If you have moderately to severely damaged credit, it is wise to get your financing taken care of before you even set foot on a car lot. This way, you can focus on just the vehicles that you are qualified to purchase. Drivers Lane can get you pre-qualified for an affordable auto loan that will allow you to buy a reliable car that will fit your daily needs, and you may be able to get financed with little or no money down.
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