Do you need a new car and are wondering “How much money do you need to buy a car?”
Don’t worry. Car buying doesn’t have to be hard. All you need to know is what you want, and what you can afford. To help you out, we’ve created this short, but complete, car buying guide.
We’ll go over the best practices for buying a new car vs a used one. Wondering about car loans or whether or not to get a warranty? No worries! We’ll go over that too.
Read on to find out.
How Much Money Do You Need to Buy a Car?
First things first, you’ll need to create a car-buying budget. To do this, you’ll first need to figure out what your total monthly expenses are. Next, identify exactly how much money you’re bringing in each month.
Monthly expenses can vary greatly from one house to the next. On average, in the United States, a single person pays about $3,189 a month on expenses. Whereas, a family of 5 is more likely to spend closer to $7,000 a month.
When you’re creating your budget, only work with facts, not hopes. Even if you’re expecting a raise, or think you can cut down a certain expense, don’t plan on it. Instead, work with the numbers you have, not the numbers you’d like to have in the future.
Once you know what your budget can allow, you can start narrowing down the cars that match it.
Find the Right Car for Your Needs
What type of car do you need?
This is a very important question, as some vehicles require more gas than others. Right now, gas prices are surging across the nation. Make sure your vehicle is fuel-efficient enough to not cause you to overspend on your commute.
Different vehicles can accommodate larger families or those with special needs. For example, there are bigger cars for those who have young children, and vans for those who haul more items regularly.
Take a look at how many people will be commuting in the car most of the time. If it’s just one person going to work every day, then there’s no need to get a big vehicle that seats 5 people if only 1 drives it.
However, if it’ll mostly be used by your whole family during the weekdays and on weekends too, then getting something smaller might not be feasible either. Instead, you might want to consider a larger car that’s able to accommodate 2-3 extra passengers.
Buying a Car Used
How much money do you need to buy a car? It depends if it’s a new car or one with miles already on it!
When you buy a car used, you have two different options on what to purchase: A new car with a warranty or a used car without one.
If you want to get a new car, be prepared to pay the full cost. This is also the case if you want to buy a used vehicle with an extended warranty. The tradeoff here is that these cars come with warranties for twice as long as any other type of used vehicle.
Alternately, buying an older vehicle gives you more wiggle room when it comes to the price tag. You’ll also avoid paying for any costly repairs before you can enjoy your ride since all of that’s taken into account in the price beforehand.
However, there are some risks associated. Since the car is no longer under warranty, you’ll be responsible for all of the repairs.
Are You Paying Cash?
Do you plan on buying your car with cash, directly from the owner? If so, you should know there are some risks involved. It can be an excellent way to save money, but if you’re not careful, it can also be a way for scammers to fool people.
Make sure you meet in person with the potential seller and inspect the car thoroughly before buying it. When the inspection is done, get everything in writing including what’s wrong with the car and how much it’ll cost to fix them before making any deals. You might also want to speak with your local DMV for more information on regulations.
Cost of Visiting a Dealership
When you buy a car from a dealership, you will get more benefits than when buying from an individual. When buying from a dealer, the car usually comes with a warranty that covers any problems that might occur during the first year. This isn’t something that is offered when buying a car off Craigslist or Facebook marketplace.
Next, if you buy from a dealer and find some problems with your car, they will cover all of them and also give you new ones if needed. The dealerships usually have some promotions going on to help sell their vehicles and so they offer great prices on some of them.
Will You Be Financing?
If you decide to finance a car, the lender might have some conditions on how much money you need as a down payment. If you can’t afford to pay about 20% of the cost upfront, then there’s a good chance your interest rates will be higher.
Some banks allow customers to finance cars with no money down at all. However, this is only for those with excellent credit and high salaries. In most cases, you’ll need some type of down payment.
Be careful when choosing a financing option. Make sure that you know what’s involved with your down payment and you can afford to put up the money before committing to anything.
There are out-of-the-box solutions if you’re short of cash. For instance, some dealerships will let you use a Plenti card towards the downpayment. As long as you have all the necessary information before committing, it shouldn’t be too hard to find something which will work for your needs and budget.
Find the Best Car Loans
Did you know there are different types of car loans?
First, there are conventional loans. This type of loan is just like any other type of personal loan. It’s given to anyone who qualifies and has a good credit score. The rates are not too high, but it does take some time before your application is approved.
Next, there are unsecured loans. Here you have to provide all the information needed on why you need the money for a car and what you plan on doing with it. If you have a good reason, then there’s a good chance you’ll get approved right away.
Moving on, you could opt for a secured loan. These loans require that you pay back funds by either selling off property or using something collateral. The collateral can be something such as jewelry or electronics which you own.
Lastly, there’s also a lease-to-buy option. Also known as a lease-purchase option, it’s the most popular type of loan out there.
Are You Leasing the Car?
If you want to lease a new car, there are some things that you should know before making the decision. When you buy a car, you’ll need to pay it off in full. When leasing, the monthly payments are lower so it’s more affordable.
However, leasing is usually more expensive than buying, in the long run? This is because when you buy a car, you pay the loan off individually. The more time it takes to pay off your loan, the less money you’ll be paying in interest.
When leasing, the payments are fixed. This means that you’ll pay the same amount every month for a certain period. The total cost is usually more than what you would have paid if you would’ve bought the car instead.
Budgeting for Car Insurance
In addition to budgeting for the car, you’ll also have to prepare your bank account for things like car insurance. Once you know the type of car you want, reach out to your insurance agent. If you don’t have an insurance agent, call a few different companies.
Let the insurance agent know the year, make, and model of the car you want to use. If possible, it’s best to provide them with the VIN too. You can usually find the VIN when you’re shopping for cars online.
Different car models can greatly change the amount you’re paying. For instance, luxury vehicles can cost as much as 5X more than a regular sedan.
You might also have to pay for things like registration fees, taxes, and maybe even a down payment on your insurance policy before driving off the lot. However, in most cases, you’ll have some type of grace period from when you first start driving until the next time you need to renew your car insurance. If you’re not sure what this is, check with a company representative or a trusted source online.
The next time you’re wondering, “how much money do you need to buy a car?”, you’ll already know the answer! You’ll need to know your credit score, how much money you can afford in a downpayment, and the type of loan you want before starting the process.
There are out-of-the-box ways to make this possible if cash is low. Since creating a car budget is the best place to start, go ahead and make one today.
Remember to be honest about what your money situation is now, so you can purchase with confidence. For more tips, read another one of our articles.