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Financing your next car: what can you afford?
July 25th, 2016
Everyone needs a car. That’s what the car manufacturers and dealers would like us to believe. Truth is, there are more people getting along just fine without one. However, many rely on their own vehicle to get to work, run errands or travel to visit family and friends. The tricky part is figuring out how much vehicle to buy. New? Used? Lease? Finance? Make? Model? Color? The options can make your head spin.
Here are some tips to help you make an affordable choice:
- Find a good tool to prepare a balanced monthly budget including all family income and expenses. This is a critical step to ensure you don’t overspend.
- Carve out transportation expenses (financing, gas, maintenance, insurance, parking, plates). On average, this category should not exceed 15% of total family expenses.
- Estimate the maximum for the “financing” (loan or lease) portion of transportation expenses – this is the most you should be willing to pay for a monthly payment. For example, let’s assume your maximum monthly “financing” portion is $300.
- Limit the financing term to 36 months if you are buying a used vehicle. This will leave room in your budget down the road for additional maintenance. A used vehicle will need more repairs and maintenance than a new vehicle. This means you should be limiting the total cost, including fees and interest, to 36 x $300 ($10,800).
- Limit the financing term to 60 months if you are buying or leasing a new vehicle. This means you should be limiting the cost, including fees and interest, to 60 x $300 ($18,000).
- If you have enough savings to buy the car outright, good for you. No need to pay interest and unnecessary financing fees.
- Shop online based on the limits you have calculated before heading out for a test drive.
- Don’t sign the sales or financing agreement until you read it front to back. Make certain there are no hidden fees and that you are aware of the amount of interest you will be paying.
Buying a vehicle may be the most expensive purchase you make in your lifetime. The more you can cut down on fees and interest costs and the shorter the financing term, the more car you will get for your money.
If you have other debts, they have to be considered as well. Taking on more debt when you are carrying excessive debt will make matters worse. A Licensed Insolvency Trustee is regulated by the government, professionally trained and can offer legislated programs to protect you if you are carrying too much debt. We will meet with you, review your budget and discuss all potential options. We meet with thousands of individuals every year. We will find a solution that fits which may include a consumer proposal or in dire circumstances, a faillite. If your vehicle financing is up to date, you will likely be able to keep the vehicle if it’s within your budget, even in faillite.
If you are burdened with debt stress, asking for sound advice is a sign of strength and the smart thing to do. Asking sooner rather than later is always better. Try our debt reduction calculatrice and call Doyle Salewski today for your free, no obligation consultation. You’ll be glad you did.