1. Decide on the type of vehicle you want / need
It’s easy to want a certain vehicle but it doesn’t mean it’s the one you need for your everyday life. If you have a family, a minivan or SUV may be the way go. If you’re a construction worker, a pickup truck is probably a better choice. If you’re a young adult, the attraction of a muscle car or speedy import may seem like the perfect two-door option for a single person. But just because you can doesn’t mean you should.
2. Determine a budget for all monthly expenses before purchase
A smart car-buyer factors the car payment, insurance and gas and other expenses into the mix when calculating how much vehicle he or she can afford. These costs can build up over time and lead to an actual “cost to own” number for car owners.
The costs associated with owning a vehicle add up as well. The price of insuring a new vehicle will surpass that of a used one. Pickup trucks usually cost more to operate due to their more powerful engines, which consume more gas. Young adults driving fast cars has led to higher insurance rates. It’s the items that are associated with purchasing a certain class of vehicle that can eat away at your monthly budget even if your monthly auto loan payment is manageable.
3. Purchase what you can afford with your budget
One way to determine if you can afford a car is the well-known 20/4/10 rule: Pay 20 percent of a vehicle’s price as a down payment, never have the term of a loan go for more than four years (48 months) and avoid monthly transportation costs that surpass 10 percent of your gross monthly income.
4. Evaluate effects on your debt-to-income ratio
It’s important to ensure your overall vehicle expense won’t cripple or provide a substantial blow to your income-to-debt ratio. If you have student loan balances which cost hundreds of dollars per month to pay, adding a vehicle payment may push your debt ratio past a point where you save little to nothing.
5. Shop around and get options
Don’t settle for a single dealer’s quotes. Decide on your preferred make and model and visit several dealerships to see what they offer for the same car. Comparing side-by-side pricing is a smart way to car shop.
6. Test drive
Make sure the vehicle you’re investing your money into is something you’re going to want to drive for a long time. Even with cars, looks can be deceiving. Take a test drive and determine your comfort level with the vehicle. Does the seat provide the proper line of sight for you? Can you easily reach the accelerator and brakes without stretching? Is the coffee cup holder at the right spot? The more comfortable you are with the vehicle the more likely you’ll want to drive it for years to come.
7. Get pre-approved at Travis before you shop
The best way to approach an auto dealership is with an auto loan pre-approval from Travis Credit Union. We’ll review your financial situation and let you know how much of a vehicle you can comfortably afford. This will give you the buying confidence and budget knowledge to stick to your price point, so you’re in control of the negotiations from the start.
You can apply for a Travis Auto Loan online, by calling our Member Service Center at (800) 877-8328 or at one of our branches.
Kelley Blue Book; Interest.com; BankRate.com; MyFICO.com