So, you have decided it is time to own a car. Maybe you are tired of spending half of your waking hours in public transit, or you have had enough of giving your paycheck away to Uber or Lyft drivers. Or, maybe you are frustrated with trying to find rides or borrow cars from friends and family in order to get to work, the doctor, and the store. Before you start looking for a car, there are some important steps to take that can save you a lot of time and money - not to mention give you a good idea of what you can afford - before you go to a car lot and are overwhelmed by the choices of cars and the salesperson's agenda. Here are 2 tips that will get you started.
1: Know your budget:
This can be the most painful part of the process of deciding to buy a car, so it is best to get it over with quickly, like tearing off a band-aid! What income do you have left after your bills are paid at the end of the month? You may need to have, as my mother calls it, a "Come to Jesus moment" here, where you actually look at what you are spending in a month. We tend to know what our rent or mortgage, power, water, internet, cell, and cable bills are in a month. But, we also tend to ignore all the little subscriptions and other conveniences that add up. For example,
Amazon Prime requires a monthly (or yearly) fee, as do all the extras that you can subscribe to. While a $6 subscription to BritBox doesn't seem like much, when you also are paying $17 a month for Prime, plus $16 a month for Netflix, and $8 a month for CBS in order to watch the new Star Trek Discovery season, you are suddenly at $48 a month for TV.
Do you subscribe to online games, like Fortnite? How much are you spending to build your Animal Crossing paradise or advance to the next level in Gardenscapes? $2 and $4 here and there doesn't seem like it has much impact on your monthly budget, until you look at how much you spend on these things in a month.
How much are the conveniences of life, such as food delivery by places like Door Dash, Grub Hub or Uber Eats eating away at your monthly budget (pun intended!)? If you are not planning for these kinds of expenses, it may come as a shock to you that you are upside down in your budget at the end of the month.
Do you do a lot of CashApp transfers? Can you categorize what those are for? Are they for impulse buys or budgeted necessities? Do you plan for them in your budget?
After you have a clear idea of what you spend and what you receive in a month, here are some things to consider:
Do you have money you can use as a down payment, to lower the cost of your monthly payments?
Do you have enough to cover the cost of gas, insurance and regular maintenance such as oil changes, car inspection, and annual tax you pay on your vehicle?
Do you have money going into an emergency fund savings account for when Murphy's Law hits, which always seems to happen just after making a major purchase?
When these are factored in, what is left for your car payment?
2: Know your credit score:
If you are planning on getting a loan to finance the purchase of your vehicle, know your credit score before you even begin looking at vehicles.
If your credit score is 700 or above, go to your bank or credit union before you go to the car lot, and get pre-approved for a loan. This way, you will know how much you can spend, what your interest rate will be, and what your options are for purchasing (new or used). A car dealership will almost always offer to find financing for your vehicle, and you can either head them off at the pass by saying you are pre-approved, or you can let them shop around for you and see if you can get a better deal.
If your credit score is above 600, you can still go to your bank or credit union, but your interest will most likely be higher. You may also apply for financing through the car dealership- just be sure to shop for the lowest interest rate when you do so.
If your credit score is at 600 or below, beware of interest rate gouging. In North Carolina, the NC Legislature allows car dealers to charge as much as 29% interest rate on a used car loan for a vehicle that is more than 5 years old. You can be certain that they are going to charge 29% interest if they can. That means that almost 1/3 of every payment you make is going into the car lot owner’s pocket. Do some internet searching for places that work with people with credit problems. For instance, The CARes Project, Inc. provides financial education and credit counseling along with vehicle loans for individuals who are working 30 or more hours a week and have credit scores below 600. Doing a Google search in your area may lead you to similar kinds of assistance.
Knowing your budget and your credit score, you are now armed with the most important pieces of information that you need to begin the car buying process. Stay tuned for the next important piece of information- the cost of protecting your investment!