Are you in the market to buy a new vehicle?
If so, great. A new car can be the perfect tool to transport you and your family around the city. However, it’s no secret that securing one can be expensive.
You’re expected to spend somewhere along the lines of $20,000 to $40,000 for an average sedan. And with each passing year, the average price is only expected to rise.
While buying a car can take a lot out of your pockets, it’s more than possible to pay for a vehicle without completely wrecking your finances.
Keen to learn more? We got you! Here are six key financial tips to consider before you head to the dealership to score your new car.
1. Look at Your Budget
Before buying a new car, it’s important to assess your finances and your ability to handle the cost of the car. We’re not just talking about the upfront price of the vehicle, we’re also referring to the other pertinent costs of vehicular ownership.
Let’s start with the most pressing amount first: the down payment. Typically, dealerships require prospective car owners to pay 20% of the car purchase price upon signing the contract. Be sure to consider the financial viability of this move.
Will you still have enough money for your daily expenses and your emergency fund after spending that amount? If so, you can proceed and work your way down the cost ladder.
Can you pay the monthly repayments? How about car maintenance? If you have a constant and consistent cash flow—as well as enough capital to back it up—then you could be set to buy your new car without experiencing a high degree of financial hardship.
If this little assignment has revealed that you’re a little behind in funds, then you should consider delaying the car purchase altogether. Delay payments if you have a large running debt or too many expenses in your day-to-day as well.
Finding financial stability is essential for you to live a comfortable life—so don’t bite off more than you can chew if your budget isn’t shaping up optimally.
2. Pick a Car For The Long Term
When making a purchase as major as a car purchase, it’s crucial for you to think of the long-term utility of the vehicle.
You shouldn’t buy a car on a whim. It can deteriorate and lose value quickly, and you may not be able to maximise its value if you find yourself barely using the vehicle.
Consider how the vehicle fits into your lifestyle and future plans. Do you see it becoming a family vehicle? Do you plan to use it on extensive road trips cross-country? Will you use it as a company vehicle and have it transport goods and people later on?
Depending on your needs, pick a car that you’re sure will help you comfortably achieve those goals.
For instance, spacious SUVs can make for great family cars, capable of housing children and spouses with ease. High-fuel-efficiency cars like the Ford Escape are great for road trips. Heavier utility vehicles can be excellent choices for transporting goods and people.
In any case, it’s essential for car buyers to consider the long-term utility of the car. This way, it can be utilised to its highest capacity in the owner’s daily life.
3. Consider Financing Options
Most car buyers purchase their car on a loan agreement.
The spread-out costs make it easier for an average person to secure a car, and the lenders are incentivised to accept these terms due to higher total revenue by the end of the term.
There are several financing options that car buyers can consider. These include the following:
- Chattel mortgage: Also known as a goods loan, this arrangement wherein the lender uses the asset (such as the car) as collateral for the loan. The borrower owns the car unless they are unable to repay. In that case, the lender has the right to seize the asset. Read here to learn more about the benefits of a goods loan.
- Personal loan: An alternative to chattel mortgages, a personal loan provides the funds needed to purchase a vehicle outright. This can come from a bank, credit union, or online lender. Interest rates may vary based on credit history and loan terms.
- Dealership financing: This type of financing comes straight from the car dealership. It provides convenient payment terms and special in-house deals, but they often have higher interest rates and less flexible term periods than personal loans.
- Leasing: An alternative to buying, leasing a car can offer lower monthly payments and the flexibility to upgrade to a new model every few years.
Whatever mode you opt for, all these options can help you secure a car—granted that you’re eligible for it. Consider your long-term finances when making a decision.
4. Be Aware of Associated Car Costs
When making the decision to buy a car, the car isn’t the only thing you’re spending for. You’re also going to spend on the costs associated with legal car ownership. This can vary depending on where you’re from.
In Australia and New Zealand, you’ll have to pay for a car registration fee in either a 3, 6, or 12-month period. You’ll also have to pay for stamp duty depending on your state and territory. You’re also legally required to pay for compulsory car insurance (CTP) or more comprehensive forms of insurance monthly.
A big chunk of your costs will come from operating the vehicle. Repair and maintenance expenses tend to be low in the first few years of ownership (granted that you bought a new vehicle). However, over time, this can increase as the car starts to experience more wear and tear.
That said, some types of cars, like electric vehicles, don’t come with these costs or have write-offs you can avail of. Government grants may also be available to keep the costs low and to incentivise green technology ownership. So be sure to do your research to know the full extent of the expense.
5. Improve Your Credit Score
One easy way to up your chances of loan approval is by having a high credit score. Your credit score is a quantifiable metric lenders use to assess your ability to repay your loans. If your credit score is low, they would have ample grounds to dismiss your application and reject it.
On the contrary, if you have a high credit score, they won’t only approve your loan, but they may even provide you with more appealing payment terms, such as a low interest rate on an unsecured loan deal.
In any case, you should work towards improving your credit score as soon as possible. This way, you can enjoy a higher likelihood of securing enough money to get a car.
Here are some tips to help you boost your credit score:
- Pay bills promptly: The best way to show that you’re an upstanding and reliable borrower is to show a history of prompt repayments for credit streams under your name, like your credit card.
- Reduce your running debts: If you have an ongoing debt repayment scheme, then work on finishing or stopping it first before taking on a new one, like this car loan.
- Review credit reports: Regularly review your credit reports to spot errors and dispute any inaccuracies you find.
- Avoid opening new applications: Open new credit applications sparingly, as each one can be a point taken away from your score—especially if it’s not approved.
By doing these things, you can improve your chances of getting accepted for a car loan—bringing you one step closer to having the car of your dreams.
6. Read the Loan Terms
For the last tip, be sure to scrutinise every word of the contract you’re signing with your car dealership. This ensures that you’re fully aware of the terms of the loan and car purchase and won’t meet any nasty surprises midway through.
In particular, take a look at the interest rate scheme, the loan duration, and the repayment structure that you’re agreeing on. Also look at the fee structure, penalties, and total costs.
You can consider reading the terms of the purchase with a legal professional. This way, you’ll have a full and thorough understanding of the vehicle purchase agreement—thus granting you peace of mind when getting into your deal.
We hope these tips will help you on your next car purchase!