Content provided courtesy of USAA | By J.J. Montanaro
About 10 years ago, I bought the sports car of my childhood dreams. Oops! After about a year of looking at it gather dust in the garage -- no, I didn’t want to risk any dings in a parking lot -- I sold it. And yes, I sold it for significantly less than I paid. When buying a car, it’s easy to get caught up in the excitement and forget about the finances.
To help you avoid a similar mistake, here are several questions to ask yourself before you buy your next vehicle:
Does it fit my budget? Obviously, that’s a question that will vary based on your situation, but if you can cap all your transportation costs at around 10-15% of your gross income, you should be on track. That includes gas, maintenance, insurance and the like. Yes, I know that can be a tall task, but the goal is to have less financial stress and more flexibility.
Can I afford what it’s really going to cost? Notice how I slid maintenance, gas and insurance into the auto budget discussion above? You should too. When you’re making the decision, factor in all the costs to determine if you’ve got a good fit. In the opening, I didn’t mention the hit our car insurance premium took when I parked that beautiful German rocket in my garage…ugh!
Am I getting a decent loan? Too often, I run into people with high double-digit interest rate car loans. In today’s interest rate environment that’s a problem. If your credit history keeps you from qualifying for anything but that type of loan, then you should buy nothing but bare-bones transportation while you work to put yourself in a better credit position.
How long will I be paying? Remember, the longer the term of your loan, the more you rack up in interest and the more likely you’ll be upside down. Yes, that means the eight-year loan you’re looking at to squeeze too much car into your budget is a bad idea. Shoot for a loan of five years or less.
Does this vehicle fit my lifestyle? I couldn’t even fit my golf clubs in the car, let alone my kids and dogs. Who was I fooling? Buy something that works for you (and perhaps, your family) and a vehicle you can drive for years to come, not something that you’ll regret in short order.
If you’re heading down the path toward a purchase and can’t answer all of those questions with a resounding “yes,” it may not be the right time or the right vehicle to buy.