Budgeting for Your Next Car

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Tons of people leave a dealership spending way more money than they intended to when leasing or buying a car. It isn’t difficult-- once at the dealership, people get entranced by badging, see a nicer model, or add expensive convenience and comfort features that they’re convinced they need. Making way higher payments than you originally intended is not a good place to be.

It is more important to understand what you can’t afford than what you can when it comes to vehicle financing. Sticking to a pre-planned budget with a fixed maximum will help deter frivolous add-ons and leave room for other costs like registration and sales tax. As John M. McDonald of General Motors Finance states, “People need to have a good understanding of what they can afford. Use your current payment as a base and decide whether you want to go up or down from there. You don’t want to end up spending more than you can afford, and certainly no dealer wants to take back a car because you can’t afford it.”

Again, being aware of hidden costs will allow you to avoid some of the common pitfalls people make when it comes to budgeting for their transportation. Once options, taxes and fees, registration, and warranties are factored into pricing, a vehicle can end up costing thousands more than its base MSRP. This makes it imperative to consider these often forgotten costs in your final budget, especially when you will be making payments based on the final purchase amount for several years to come.

Options alone can be dangerous, especially in many luxury brands, where features you would expect to be standard are part of a $2,000-$3,000 “premium” or “sport” package. The best way to protect against adding options you don’t need or can’t afford is to familiarize yourself with the features of the vehicle you want. Decide what options are a necessity and then choose which of these you can really afford. Familiarity with the options list will keep you from making an impulsive decision when bargaining time comes around, and may even steer you to a more money-conscious model that comes with more standard features.

“A lot of research can be done online. Most manufacturers offer a ‘build your own vehicle’s options on their websites so that you can ascertain the price of the exact car you want. You can even break down the financing to see what the monthly payments will be like,” McDonald explains.

While insurance costs are not usually considered when calculating the total price of a vehicle, they should be given attention to as it can dramatically affect the overall monthly price to operate a vehicle. Retrieve quotes prior to visiting the dealership so that you can see which models or engine sizes make the most sense for your budget. Once you’ve arrived at a price you are comfortable with paying every month for the next few years, go to a dealer and see what pricing is offered on the car of your choice.

One last piece of advice-- check to see if there are any incentive programs being promoted. Often times dealers will give cash back offers, trade in credits, or other incentives to get customers in new cars. Waiting to buy a car on major sales days like Labor day and Memorial day will also usually yield savings.

If the offer you are given does not fit into your planned budget, don’t be afraid to say no. All of these premiums can make the overall package add up really quickly. Buying a new car should be enjoyable, and if the price doesn’t work for you, shop around and find one that does elsewhere.


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