Have you ever settled yourself behind the wheel of your new car and been hit with a wave of financial regret? It could be days, weeks or even months after the purchase before the reality of the car payment hits you. By then, the damage to your budget may already be done.
To help avoid this type of fiscal sideswipe, here are some key points to help you make a better purchase. Though auto sales are booming and interest rates remain low, it's still critical to get it right in these three areas.
- Best Deal. Today, this is much easier than it's ever been. Tools found on a host of sites give you the information to know how much you should pay, including all available rebates and other deals. When I was deployed, I took advantage of an overseas buying program -- and those programs still exist.
- Payment. The right price is part of the formula, but if you're not paying with cash (which would be a best-case scenario), you'll have to work the payment into your budget. I firmly believe that folks should shoot for a car payment of less than 10% of their gross income. So with $50,000 of income, you should be targeting a payment(s) of less than $400 a month. That may eliminate a lot of car options from your menu of choice, but you'll be less likely to someday find yourself saddled with a car payment you can't afford.
- Loan term. Speaking of getting a payment you can afford, there are several ways to do that. One disturbing recent trend has been for buyers to achieve a manageable payment by extending the term of the loan. Apparently 72- and 84-month loans are now commonplace in the market. Don't do it! If you use a loan, shoot for 48 months or less and don't go any more than 60. The longer the loan, the more interest you'll pay, and the more likely you'll become "upside down" with that loan and be driving a car that is worth less than you owe.
To be clear, I'm a car guy. If there's anybody who understands the temptation to break these rules, it's me. But please, take my advice. Granted, you may not leave the lot with the Italian racer of your dreams, but you won't be hit with a major dose of financial regret either. Happy shopping!
