Buying a car is a major financial commitment. No matter who you are, you should take some time to consider the implications such a purchase will have on your life. If you’re sure you’re ready for a vehicle, it’s time to figure out what’s within your budget.

You need to be honest with yourself when putting together your car-buying budget. Failing to do this will only result in greater difficulties for you down the line.

Here’s what you need to think about when getting a car on a tight budget:

  • First thing, you need to determine your total income. Include all sources. You need to do this with your after-tax income since this is the exact amount of money that you’re bringing in every month.
  • Now, look at your current expenses. Add up everything that you’re spending each month.
  • The difference between these two numbers is the maximum you’ll have available to spend on a monthly payment in your current situation. But most people should try to avoid using every possible penny for their car payment.
  • Try to figure out some non-essential expenses you can cut to free up more of your income. This might include memberships, subscriptions, or money you spend eating out.
  • It’s a good idea not to spend more than 10 percent your after-tax income on all expenses related to your vehicle. Some people say up to 15 percent is okay, but this is a stretch for many individuals. There will be more on those other expenses later.

What’s Your Credit Situation?

Your credit will play a significant role in determining the affordability of a vehicle. People with good credit are going to get the prime interest rates, which means they’ll pay less over the life of the loan.

Conversely, people applying for a low-credit car loan should expect to see higher interest payments. This is a way for the lender to mitigate the risk of giving money to someone who doesn’t have the best credit history.

Those with no credit history will also be offered higher interest rates. However, shopping around for the right lender can get you the best rate. Even if it’s harder to get a pre-approval, it’s typically a better idea to do this than get financing at the dealership, where they’ll tack on extra percentage points to your interest rate.

Look at Used Vehicles

Used vehicles are always going to have a cheaper price tag than a brand new one. In fact, most cars will depreciate 10 percent or more within the first month of ownership. That means you’re instantly losing money on your investment. Then again, a new car is typically going to be more reliable and last longer, than a used one. You also can be totally confident in the history of a new vehicle, since no one else has owned it yet.

Many people think buying a used car off a three-year lease is one of the most cost-effective ways to buy an auto. The most significant depreciation is behind you, but the vehicle has still only had one driver. Another plus of getting a used car is you can see if there are any inherent issues with that model year. Sometimes it takes years for people to see there’s a glaring defect with a car.

Think about Other Costs Associated with Car Ownership

As mentioned earlier, you should think about all the costs that go into car ownership when you’re thinking about your budget, not just the loan. These are a few of the top expenses that will drive up the price of owning a car:

  • Insurance: Your driving history, the make of your vehicle, and your usage will all contribute to auto insurance costs.
  • Maintenance: Many people forget that keeping your car in working order is an expense in itself. You’ll need to have the oil changed a few times per year. Car parts can be extremely costly. So even small repairs can cost you hundreds of dollars.
  • Gas: You can’t get anywhere without it. Think about gas mileage when you’re in the process of buying a car. This can end up saving – or costing – you thousands over the life of the vehicle.

Everything’s harder when you’re working with a tight budget. Buying a car is no exception. However, it’s not impossible to fit a vehicle into your life if you plan effectively.

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