How to Budget for Your First New Car
Shopping for cars is exciting. It’s the doorway to an entirely new world of freedom. You don’t have to rely on anyone for transportation, and you can take that spontaneous cross-country road trip you’ve always wanted to take. In the process of looking at those sparkly and shiny new vehicles, you might have forgotten that you need a specific budget in order to actually get the car. You might not realize that the original price of the car is not the final price – there are typically extra costs added onto the price at the time of the final sale, like taxes and insurance. This is how to budget for your first car – so you’re not left with any surprises.
Take a look at your savings and income so you can determine how much you can realistically spend on a car. Your monthly car payments should not exceed 20% of your monthly income. This will give you enough leeway to afford payments in other areas of your life like rent and health insurance.
You can get a car loan through the dealer or through your bank. You can also get pre-approval for a loan before you purchase the car. This is a great way to manage your finances and keep track of your budget.
Some car loaners will check your credit score. If your credit score is low right now, then you should work to improve your credit score before applying for a car loan. There are also loaners who will lend you money even if you have poor credit, like Springboard Auto.
You might have grown up driving only used cars your whole life, which is why you want to upgrade! New cars are more expensive than used cars but usually of better quality. They typically last longer than used cars, which might need more maintenance and replacements. These costs can add up quickly. As of this year, Hyundai offers the best car warranty with their powertrain warranty at ten years or 100,000 miles.
Another thing to consider is that cars lose value over time – especially within the first two or three years. One thing you can do to save money is to buy a car that is several years old. That way, you’ll still reap the benefits of a fairly new car while saving a ton of money in the process.
Another added cost of purchasing a new car is sales tax. This varies by state. For example, sales tax in Colorado is a maximum of 11.2%, 6.35% in Connecticut, and 8% in Florida. The sales tax can also vary by city. You can check your DMV website in your state to estimate what the sales tax of your new car will be.
You’ll need car insurance! The price varies from state to state. For example, the average annual cost of car insurance in Colorado is $1,435, $1,200 in New York, and $934 in Texas. Keep in mind that this price also varies by gender and age. Make sure you have enough money in your budget to cover these costs.
There’s a lot that goes into budgeting for a new car. Things like car insurance, sales tax, warranty, and car loans can add up quickly. If you have enough leeway in your budget ahead of time for a new car, then you should be able to purchase a car without any major surprises.