You’re seeking to buy a new car, then? Congrats! When looking for a new car, you should first figure out what you can truly afford. And if you’re thinking about financing or leasing a car, you should be aware of all the charges associated with it.
This is so because your overall spending power equals the sum of your authorised loan plus any cash down payment and trade-in values. When determining your budget for a new car, take into account the following considerations:
Reduce the size of your purchase. Purchase a cheap or more affordable vehicle. Making sure that the automobile you want is also the car you need is the best way to save money on a vehicle. You must consider whether a Corolla would work just as well as a Landcruiser. Budget vehicles can help you save money, not just because they are inexpensive but also because they will cost you much less to maintain.
Purchasing a car on a tight budget need not prevent you from taking advantage of cutting-edge technology. Some of them include improved features. Alternatively, you may always customise the vehicle to meet your requirements.
Before you buy that bigger, more expensive model, give it a lot of thought as to why you’re acquiring it.
- Total Cost
In addition to the sticker price, the final cost of your car will also include optional extras like extended warranties, title and registration costs, and sales tax. When looking for a new car, keep these in mind and allow some wiggle room in your budget.
Keep in mind that there are other expenses related to car ownership that you will also need to consider, such as gas, regular maintenance, repairs, registration, and auto insurance. Knowing the total expenses will help you break down future purchases.
- Recurring payments
You must determine your desired monthly payments if you plan to finance or lease a car. Remember that interest and principal will both be included in your monthly payment. Your monthly payment will depend on the loan duration, interest rate, and down payment. If you can hold off until interest rates are lower, you may be able to afford a more expensive vehicle or lower your monthly payments.
- Payment in Full
The majority of car purchases include a down payment. Your monthly payment will be less the more you are able to put toward your down payment.
- Selling Your Old Vehicle
Have you thought about trading in your old vehicle? It can improve your loan conditions and help lower the overall cost of the new car. When negotiating for a new car, trading in your old one may give you more clout.
- The 10%–20% Rule
For drivers who wish to save money on their purchases, you should budget 10% of their income for your car. This means that if your monthly income is N60,000, you should set aside N6,000 each month to pay the monthly instalments on all of your automobiles. (Since the average person spends 20% of their income on transportation, this figure may be more accurate.)
The 10%–20% ratio still holds true if you don’t intend to finance your new vehicle. To calculate how much you can spend on a car, multiply your annual income by 20%. For instance, if your yearly income is N1,200,000, you’ll be able to spend N240,000 on your car each year.
- Total of Your Debt
The 36% rule is an easy one to follow if you already have a lot of debt and don’t want to add much more to it. According to Consumer Reports, it is preferable to limit your monthly debt payments to no more than 36% of your gross income. List all of your monthly debt payments, including those for your loan, personal, and mortgage.
Once you’ve added them up, take that amount from 36% of your salary to get a realistic idea of how much you can add. You can only afford a new monthly vehicle loan payment, for example, if your salary is N60,000 per month and your existing monthly debt payments total N25,000. By subtracting N24,000 from N60,000, you get a total of N36,000
- Cost-Benefit Analyzers
Because every person’s circumstances are unique, only you can decide what your budget is and how much you can afford to spend on a new car. Fortunately, there are several online affordability calculators that you can use for free to determine your preferred price range. Even factors like your loan length, finance rate, down payment, and the value of your trade-in might be taken into consideration (if you have one). Based on how much you can afford to spend each month, an auto loan calculator can also assist you in determining the best overall pricing.
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