The purchase of a vehicle is usually the second most important financial decision we have to make after our house. It is not uncommon, therefore, that the car becomes a source of significant debt in the household.
In an ideal world, we would have no debt. That said, for many households, a car loan is required, and if we have done our homework well, this loan will not be too heavy to bear for our finances.
However, you need to plan the purchase very well, and not leave anything to chance. Here are five tips that will help you make sure your vehicle doesn’t become too much of a financial burden.
Plan your budget
Before buying your vehicle, it is important to calculate your monthly budget. When we talk about budget, we are not talking about the amount that will be allocated to the vehicle itself, but rather to your total monthly expenditures. We are talking about electricity, rent, food, savings, telephone bills and all other recurring expenses.
By comparing your monthly expenses to your income, you will be able to determine how much you can allocate to your vehicle every month. It is wise before you even begin the shopping process to meet with a financial advisor who will guide you in planning your budget if you are not sure where to start.
Beware of longer financing
It’s easy to reduce the monthly payment of our vehicle by adding months to our car loan. Obviously, our vehicle will be less expensive every month if our loan stretches over 84 months compared to 60 months. In return, the longer our loan is, the longer we accumulate interest charges, and the longer we have to wait before the remaining amount on our loan is equivalent to the value of the vehicle.
Some manufacturers offer longer loans at low interest rates and the option may be worthwhile if you plan to keep your vehicle for a long time. That said, you have to make sure you won’t need to change your vehicle before the end of the loan, and that you can bear the monthly payment over time.
Calculate related expenses
A car is much more expensive than the monthly payment associated with it. Registration, fuel, insurance and maintenance costs must be accounted for. If you divide the total expenses incurred during the year by 12, the amount can sometimes reach more than half of your monthly payment. So we have to be careful that we have factored in these additional costs into our budget.
Thanks to Morrey Mazda of the North Shore for their help with this article.