Are you planning to buy the first car of your dreams? Once you reach the market to find the car that matches your expectations, its price should not disappoint you. To avoid that, here we have provided the solution to your question, ‘how much should I spend on my first car?’
How can you calculate the amount you can afford for your first car?
Planning and saving the necessary funds is essential to buy your first car. Consider these guidelines to get a better idea about the amount you should spend on your first car.
Set your budget
Before you buy a car, you should have a clear idea about your budget. How can you decide your budget? To know your budget, you should calculate your income, expenses, and saving.
Be careful in your budgeting by factoring in every monthly cost. You must include car costs, rent, groceries, shopping, and household expenditures, and enjoy extracurricular activities. When you have calculated your monthly expenses, you will have a better idea of how much you can put toward a car.
For your first car, you can spend an average of $5000 to $10000. Most first-time car buyers can’t afford a car worth more than $10000, and it’s risky to purchase a vehicle costing less than $5000 as it cannot be relied upon.
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Choose car financing
It is recommended that instead of buying a car by paying the amount all at once, it is good that take auto insurance, irrespective of whether you are a first-time buyer or not. There will be a payment that you have to make every month. Plan such that your monthly payments won’t exceed 10%-15% of your monthly income.
If your monthly income is $2500, you can make a monthly payment of $250 (10% of your income). With a loan term of 36 months and an interest rate of 4%, you can afford cars for up to $8468.our car affordability calculator to know how much will be the loan amount you can afford based on your monthly payment, loan term, and interest rates.
Also, you should know about liability insurance; for extra protection, most car owners carry collision and comprehensive coverage. The insurance amount varies based on the type of car.
More Car insurance tips for first time car insurance buyers
Calculate the down payment
After setting a budget, you will know how much money you should save to spend on your car.
You can make a down payment by saving extra money to buy your first car.
A higher down payment implies smaller monthly payments. Try to make a down payment of 10% of the purchase price.
Do proper research
Before you jump into the market to make your purchase, be keen that you have done proper research. You will only know about the different car models, their features, and the corresponding prices through proper research.
Through this research, you will better understand what features match your needs and what price you can afford. Also, compare the auto insurance quotes from different financial institutions and choose the right fit.
Decide the loan term
The average auto loan term is four years. Never accept a loan with a loan term of more than four years if you are a first-time buyer, as it will increase the interest you have to pay. Those with good credit ratings should have no trouble securing a loan with terms of four to five years.
Financial institutions frequently extend loan terms for as long as possible as they will get more money as interest from you. Always opt for a shorter loan term. You can always trade in your car after four or five years and acquire a new one. However, if you take out a loan for six years, you won’t have much equity after two or three years. This could suggest that your trade-in is not worth very much.
Know the additional expenses
Other than the purchase price, additional expenses include sales tax, registration fee, documentation fee, maintenance fee, tag and title fee, and fuel expenses. You take these expenses into account before planning your budget.
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Which is better: A used car or a new car?
After setting your budget and saving enough, you will know how much you can afford. As you know that the market and economy are changing, and it is possible that the budget may or may not match the market prices.
If you cannot afford a new car, you should not be disappointed as you can buy a used car. The only thing is when you buy a used car; additional costs will be involved for its maintenance.
You can surely buy a new car if you can afford to pay for it. By buying a new car, you can enjoy all the new features.
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You may feel anxious when you go automobile shopping for the first time. Deciding what is affordable can be the most stressful part. You may get a dependable vehicle that won’t drive you into debt if you set aside an appropriate amount of money from your monthly budget for the automobile purchase.
Never make a mistake by going after your dream car, which costs you more than you can manage. You shouldn’t worry too much if the first car you buy today isn’t perfect because you’ll eventually need to replace it. But you can put it off till your savings have grown and you can afford the car of your dreams.
Way.com, the super app for all your car-related concerns, is here to find the best gas discounts, EV charging near you, auto insurance, auto refinance, and more! Use our app to find and book the best car washes and parking spots near you.