Top 6 Things to Consider When Planning Your Budget for Buying a Car

new zealand dollar

Aside from the make and model, one of the primary considerations for buying a car is your budget. It doesn’t matter if you’re buying new or used—the bottomline is that you need money to do so.

The most important thing to remember is that there’s a lot more to think about than just the list price of the vehicle you want. There are other expenses that you should also keep in mind, contributing to the final amount that you should be working towards. Here are just a few:

Total Cost of Ownership

A vehicle’s total cost of ownership includes all the expenses spent on fuel, insurance, maintenance, repairs, and service. If you didn’t buy in cash and in full, then the interest on loan payments is also part of the total cost of ownership. Finally, the losses incurred due to the depreciation of the car’s value is also included in this computation.

This means that an older, cheaper model may end up costing you more in the long run, than a newer, more expensive car. Obviously, this is not always the case. For example, a new ute may be more of a gas guzzler than an old compact sedan. The key here is to do your research and factor in different aspects of car maintenance.

You should also think about the ease of finding a reliable auto parts supplier. Old models may not have readily available parts, while some brands might have parts that need to be imported. All of these can add up and result in higher-than-usual maintenance costs.

Purchase Costs

The purchase cost of your vehicle includes finance charges on your loan, dealership fees, registration fees, and taxes. Some of these are one-time charges, while some are recurring. Be prepared to shell out more money upon purchase and make sure that you know all about the additional expenses.

Do note that purchase costs can be folded in with the total cost of ownership. However, as mentioned above, many of these fees and charges are collected only once (usually upon purchase). As such, it’s easier to categorise them as separate expenses.

Insurance Costs

As previously mentioned, insurance costs are part of the total cost of ownership. However, many vehicle owners—especially first-timers—forget or don’t think about this aspect of purchasing a new car.

Don’t be afraid of shopping around for the best insurance rates. Consider the insurer’s reputation and how they treat their customers. What kinds of coverage do they offer and how long do these coverages last?

Also, take note that new vehicles cost less to insure. As such, the initial cost may be higher but the monthly payments will be lower. Still, this doesn’t mean that you should always go for newer models. Ultimately, it’s all up to your personal preferences and needs.

Fuel Costs

Like insurance payments, fuel costs are usually included when computing a vehicle’s total cost of ownership. Nevertheless, it’s good to focus on this aspect of ownership since fuel is going to be a constant expense for your car.

When planning a budget for buying your car, always factor in the vehicle’s fuel economy. You can easily find this information online, whether from manufacturer websites or review blogs.

You should also think about whether you prefer diesel or petrol. Diesel engines are usually more efficient by up to 25%, but diesel is usually more expensive. Diesel engines also offer more power, but may be more costly to repair if something goes wrong.

Your Other Debts

There is the so-called 36% Rule when it comes to debts or loans. This “rule” states that you should not spend more than 36% of your gross monthly income on debt. Thus, before availing any financing options for your car, itemise all your existing monthly payments. These include your credit card bills, mortgage, and other loans.

Subtract this total from 36% of your income. The resulting figure will be the amount you can ideally afford to spend on an additional auto loan.

Your Loan Terms

When you apply for a loan, you need to understand it completely. Know how much you’re approved for, as well as your options for the loan term. More importantly, know what the interest rates are. Even a small increase can add up to a huge amount when you compound it over time.

You should also understand what influences the interest rates and the amount that you can borrow. Some of the bigger factors include your credit history, how much down payment you can cover, and the make and model of the car.

Lastly, consider shortening the term of your loan. This will lower the interest rate, which results in lower total payments. A longer loan term lowers your monthly payments but also increases the interest rate. This results in an overall higher total payment.

Buying a car should be an exciting experience, not a stressful one. Make sure that it’s the former by ensuring that you have a clear-cut budget that will see your purchase through.

Happy car shopping!


All Rights Reserved - Hi Tech Auto Parts