Getting a new ride is a dream come true for millions of Americans as more than 16 million people will buy a new one this year. However, many millions more will sit out of the market because they simply cannot afford to buy one.
If you want to make your new car dreams become a reality, there are some things you must do. Let’s take a look at how you might help make this dream come true.
1. Pay off your old car first.
It makes no sense to buy a new car if you are still making payments on an old car. Whether that car was bought new or used, you should own it free and clear before shopping for a new car.
Certainly, the dealer would be happy to take your car even if it was not paid off. However, that typically means your old phone will be rolled into a new loan, costing you far more for the new car than what it really is worth.
2. Keep your old car in top shape.
Do not neglect your old car as you begin to save money towards the purchase of a new car. You can use the old car as a down payment towards the new car, money that can come in handy to reduce the cost of your loan.
A trade-in, however should not be the only funds you present when buying a new car. You should also know that you can make more money selling your old car to a private party then what a dealer will give you as a trade-in.
3. Survey the market.
Do you know the make and model of car you want to buy? You should know this information before shopping for a new vehicle. You can arrange a test drive through a dealer, but be careful: you might be talked into buying a car before you’re ready to do so.
Once you know the type of vehicle you want to purchase and the amenities you require, such as climate control, a navigation system, a power moon roof and other features, then you should have a good idea for the car’s present value. Keep in mind though that it may take you a few years to raise that money, so allow for inflation and model changes to add to the price of the car.
4. Begin saving money.
Ideally, you will have a significant down payment to work with when you purchase your new car. Fewer than 10 percent of car shoppers pay cash — the rest of us will have to finance our purchase.
One way to calculate your projected monthly loan payments is to take the likely cost of your new vehicle after all rebates are taken and subtract the value of your used car as well as your down payment. Add in whatever money you have saved and the rest you will finance.
So, if you are looking at a $25,000 car and your current car is worth $5,000 right now, then you would finance $20,000 today. On the other hand, If you save $300 per month over the next year, then you would have saved $3,600 towards the purchase, bringing your financed amount down to $16,600. That is, if the price of the new car stays the same price and your current cars value stays up. And that is a very big if.
5. Calculate the financing.
Based on the example given here the $16,600 financed may be within your reach, especially if you choose a 60-month auto loan. A $16,600 loan divided by 60 equals payments of $277 per month. And that does not even account for interest. Figure that your payment would come in closer to $290 per month with interest included
The question to ask yourself here is this one: can I afford to make car payments of $290 per month? If so, you are still not done. What you need to do is contact your auto insurer and give them a hypothetical example of the vehicle you are considering purchasing. Get a quote for your insurance; it will come in higher than the insurance you pay on your current ride.
If you can afford the car payment and the higher insurance, then a new car should be within your reach. If not, then you need to raise more money or lower your expectations. Either way, your new car possibilities are now stronger because you took the time to investigate what you really want and what you can afford.
See Also — How to Save Money Toward Your Next Car
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