You’re happy when you finally get to an age where you can buy your own car. You’ve probably been saving for a while to get the money for your car’s down payment. Maybe your parents are giving you a loan to put down on a house. The thing is, you’ll have to pay a car payment once you drive that car off the lot. And most car loans take at least 3–4 years to pay off. You should make sure you can pay the monthly payment.
You also have to worry about things like gas, insurance, and repairs. Here, we will talk about how much you should spend on your first car. We’ll also talk about whether you should put down a lot of money or if it’s better to keep that money in the bank.
Do You Want a Used or New Car?
Used cars were a good choice for first-time car buyers a year ago. They cost much less than a brand-new car. And a lot of people could buy the car with cash or make a small payment each month. A little bit has changed.
Even used cars are pretty pricey these days. This is because many people trade in their cars after only a few years. The cars are still fairly new, and the dealerships and banks need to make money off of them. When you figure out how much you’ll be paying for your car loan, it might be better to just buy a new one.
But not everyone has that choice. Not everyone has enough cash to buy a car outright. And maybe you just can’t afford a new car. You know how your money works. And you should have an idea of how your money will be in the next few years. Whether you buy a new or used car will depend on these things.
What Does Your Financial Picture Look Like?
Look at your finances before you decide how much to spend on your first car. You need to think about a number of things, such as:
How much do you make? Check out how much you get rid of every week or two. Do tips or commissions make up a large part of your income? If this is true, it’s not a sure way to make money. Take a look at how much you’ve made on average over the last six to twelve months.
You don’t live with your parents, do you? If you live at home, you can pay more each month toward your car payment. You might not always live at home, though. Most likely, you’ll want to move out on your own in the next few years. If this is the case, you don’t want a big car payment to stop you from moving forward. Think about this when you decide what kind of car to buy and how much you want to spend.
What are some of your other costs? If you have to pay rent and student loans, you probably won’t have much left over for a car payment. This is something to think about when shopping for a car.
Is There a Certain Percentage of Income You Should Spend on Your First Car?
There are some rules you can follow to figure out how much to spend on your new car. If you are very careful, you might not want to spend more than 10% of your income. So, if you make $40,000 a year, you shouldn’t spend more than about $4,000 on a car. This means that you can’t buy a new car.
But you could find a good used car. If you have cash, you can shop on your own. This makes it possible to talk about a deal. So, if you find a car you really like that costs $5,000, you might be able to talk the owner into selling it for less. When you buy a car through a dealership, this isn’t really possible.
If you have a better handle on your finances, you can probably buy your first car for about 20% of your annual income. If you have never bought a car before, you are probably young. That means your income might not be as high as the incomes of other people shopping for cars. And there is no problem with that. You have the rest of your life to get a second and third car. Only once do you get to buy your first car.
. So, if you make about $30,000 a year, you wouldn’t want to spend more than about $6,000 on your first car. This would be enough to buy a good used car. Or, you could put down a few thousand dollars and then pay the rest each month.
You could spend about 35% of your annual income on a car if you really wanted to splurge. But this is not a good idea. In the next few years, anything could happen that would make it hard for you to pay your monthly car payment. If you are late on just one or two payments, the bank can take your car. That’s not what you want to happen. You’ll not only lose your car, but you could also hurt your credit.
How Much Should You Put Down on Your Loan?
If you want to finance a new or used car through a car dealership, you’ll need to get a loan. Even people with good credit have to put something down. So, it’s great if you have $2,000 to put down on your first car. The finance officer at the dealership will do everything they can to help you buy a car. They’ll do the math and tell you how much you can get based on your credit score.
You need to watch out for one thing. The finance officer might try to get you to buy a car you can’t pay for. Even if you are eligible for a certain amount of money, that doesn’t mean you have to spend that much. Don’t let the finance officer treat you like a fool. If you feel like you’re being pushed too hard, have your parents come with you to the dealership. If you are with another adult, the salespeople are less likely to take advantage of you.
Depending on the type of car you buy, you should be prepared to put down about 10% of the price. So, if you want to buy a car that costs $20,000, you should have about $2,000 to put down. Dealerships sometimes have special deals where you don’t have to put any money down. Pay attention to these deals. Most of the time, they charge you such a high interest rate that it ends up costing you a lot more in the long run.
How Long Should Your Loan Be?
The average length of a car loan is about 4 years. The problem is that when you buy your first car, the finance people try to get you to take out a loan for 5 or 6 years. When you look at the numbers, these loans don’t make any sense. If this is your first car, you probably haven’t been alive long enough to mess up your credit. If you have good credit, there’s no reason why you shouldn’t be able to get a loan for 4-5 years.
Loans are often given for as long as possible by finance companies. This makes them more interested. That means you’ll have to pay more money. Don’t let them pressure you. If they want to get you into a car, they’ll find a loan that works for you. If you get a car loan for 4-5 years, you can always trade it in for a new car after a few years. But if you have a loan for six years, you won’t have much equity after two or three years. This means that if you trade in something, you might not get any real credit.
Remember – You Have to Include Gas, Insurance, and Maintenance
There’s more to buying your first car than just making a car payment. You need to think about how much things like gas and tolls will cost. This could cost you at least $100-$200 per month, depending on how much and how far you drive. You must also pay for car insurance. If you are paying for a car with a loan, you must have full coverage.
Insurance is very expensive for new drivers. You could have to pay at least $300 more per month for car insurance. This could be as much as what you pay for your car. Check to see if joining your parents’ insurance would save you money. It could make it a lot less expensive than if you bought it on your own. You should also think about how much it will cost to keep up. A few hundred dollars a year can be spent on things like oil changes, repairs, and the like.