If you feel that buying a car starts by short-listing the brands and cars that you want, you’re wrong. It first starts with the need and then the budget. You don’t want to buy a new car without proper budgeting. Having purchased a car recently and gone through the whole process, I’ll share 5 things you should consider while deciding on your ideal car budget.
I recently purchased my first car a few weeks ago. Before you ask, no I didn’t get one just because my friend got it. I got one because I needed one. Since I moved to a different part of the city, my travel times have shot up and hence travelling on a two-wheeler wasn’t safe. Thus, the new car and this post to help you figure out your ideal car budget.
5 Tips to decide your ideal car budget
Every week there’s a new car that is launched. And every time you come across an advertisement or a post on social media, you’re lured into getting one. The same was the case with me. Having driven many cars in the past, every new car launch made us want to buy a car immediately. But I knew that buying a car is a big ticket purchase and hence you need to find the ideal car budget for you.
Income vs Car Price
When working on arriving at an ideal car budget, your primary source of income is the key. Whether you’re a salaried person or a business owner, your car budget will be decided by your income. As a thumb rule, a good practice is to fix your car budget that is not more than half of your annual income. Doing this will ensure that you’ll buy a car that you can afford without denting your financial situation.
Choosing The Right Car Size
We all want a big car. A car that can ferry the entire apartment, a car that has a presence on road. But do we actually need one? Frankly speaking, most of us don’t need big cars. Unless you’re someone who often moves with a lot of luggage and has a big family, buying a big car is fine. For every other case, a hatchback or a compact SUV is just enough. Remember that, the bigger the car, more the price and lower the mileage!
Value vs Luxury
The next thing to consider is whether you want to buy a value-for-money car or a luxury car with all the features. For 90% of first-time car buyers, the mid variants of most cars are perfect. The top variants of any car come with features that you don’t need. Things like paddle-shift, 360 cameras, sunroofs, and connected cars are luxury features that not many people need. So decide on what you want. Refer to the first part of my how to plan and buy your first car blog post.
Cost Of Ownership
You may want to buy that fancy car from a foreign carmaker, but have considered the availability of parts and service stations? You need to understand that buying a car comes with a set of costs to keep your car running. From fuel to regular servicing and spare parts. Make sure that the car you’re buying is reliable and whose spare parts are easily available. So this also adds to the total cost of owning a car which helps you arrive at the car budget.
New vs Old Car
While many people want their first car to be a brand new one, it sometimes makes sense to buy an old one. If you’re not an experienced driver, it makes sense to buy an old car. Also if you’re on a tight car budget, an old car would cost you less. Further, there’ll be situations when you might get a good deal on an almost new old car. The owner just bought a car that’s barely almost new, they are moving to a different state and wish to sell the car. In such cases, you might get an excellent deal.
These were just a few ways you can arrive at the ideal car budget for your new car. When you consider all of these things, you can arrive at the range that you can spend and buy a car that has everything you need. Having arrived at the budget, the next thing to understand is how to finance your car. Let me share a few options that you can take to fund the purchase of your new car.
Financing Options To Purchase A Car
Having arrived at the rough car budget, the next logical thing you want to do is to decide how you’d finance your car purchase. There are two standard ways you can choose to finance your car.
Pay the full amount in cash
You can very well go for outright purchase by paying the entire amount in cash. And by cash, I meant an online transfer or that sort. I’d only recommend this if you’ve planned to buy a car well in advance. This would work best if you’ve been saving up for your car.
Even if you’ve done some form of goal-based investment either into mutual funds or stocks and similar instruments, buying a car with a complete downpayment won’t hurt your finances much. The biggest advantage, in this case, is that you don’t need to pay anything after you’ve bought the car. The downside is paying up a huge amount upfront.
Take a Loan or Cash Advance
Most people however take the next viable option which is taking a car loan. You pay a small amount as the down payment (usually 20% of the car’s price) while the rest is paid in form of equated monthly instalments (EMIs) over a fixed tenure. Whether you’re a small business owner or a salaried person, you can also turn to cash advances that can help you pay the downpayment of your car. You can get a loan on a credit card or take an advance salary from your employer. These are a few ways to take a cash advance.
Further, if you haven’t been able to secure a car loan for whatever reason, you can apply for cash advances that can help you buy your car. This option is great as you aren’t paying a huge sum of money upfront, plus you have to a small amount every month. The downside is that you generally pay a price on the loan/advance taken (interest) and pay a small amount for the entire tenure of the loan.
So, I hope this post help you arrive at your ideal car budget. I’ve shared tips and tricks based on my personal experience. Keep these points in mind while arriving at the ideal car budget for you. The financing options too must be considered when you’re planning to buy a car.