5 Financial Tips Before You Buy Your Next Car
Are you ready for a new set of wheels? Before you head to the dealership, take some time to crunch the numbers and get your finances in order. A little planning now can make the process easier and less stressful later – so you can drive off with confidence.
1. Think about the big picture
When you buy a car, the sticker price is just the beginning, and other expenses can add up fast. Make sure you can comfortably cover everything that comes with vehicle ownership, such as:
- Insurance
You’re legally required to have auto insurance, and premiums can vary widely by the car type, age, mileage, and your driving history. - Registration and taxes
Don’t forget about other costly legal requirements too, like sales tax, registration and title fees. - Maintenance
Be sure to plan for regular car maintenance bills, such as oil changes, as well as occasional costs such as new tires or brake pads. - Other costs
Prepare for miscellaneous expenses, including fuel, parking, tolls, car washes, and windscreen wash. It all adds up!
2. See how much you can afford
It’s easy to get caught up in the moment and buy more car than you can afford. To make sure you don’t get in over your head, do a little math. Aim to keep your total car payment (including additional costs like insurance and repairs) at or below 15% of your monthly take-home pay. So if you bring home $4,000 a month, your total vehicle costs should be around $600 or less. If you want to be more conservative, keep costs under 10% of your take-home pay.
Once you have a number in mind, get pre-approved with us before you hit the dealership. This will help you know exactly how much you could borrow and what your monthly car payment might be.
3. Save for a down payment
You don’t always need a down payment, especially if you have good credit. At Somerville’s Credit Union, qualified borrowers can get up to 110% financing of the vehicle’s MSRP (allowing you to borrow extra to cover insurance and other costs), or get up to 100% financing on a used vehicle.
But putting some money toward your car can still be a good idea as it helps lower your monthly payment and reduce total interest charges. A good rule of thumb is to aim for a 20% down payment on a new car and 10% on a used car.
If you don’t have that much saved yet, that’s okay. Get started now by opening a savings account that’s dedicated to saving for your new car. Ask us about setting up automatic transfers on payday to start putting aside money for your purchase without needing to think about it.
4. Plan for the unexpected
It’s important to build up a rainy day fund to help protect you from the unexpected. If you were ever faced with a tough situation such as a big medical bill or a job loss, having an emergency savings fund could help you stay afloat until you get on your feet again. You wouldn’t want to fall behind on your loan payments – that could hurt your credit score and put you at risk of losing your vehicle – and a rainy day fund can help protect you.
Even a few hundred dollars set aside can make the difference. Just like saving for a down payment, consider opening a dedicated savings account and setting up automatic transfers to build up your emergency savings.
5. Talk to us before you buy
We’re here to help! Stop by the branch or give us a call, and talk to us about your goals. We’ll help you review your finances, set up your savings goals, and explore auto loan rates – with competitive rates, flexible terms, and fast approvals from your friendly local team.
