When you create a budget for purchasing a used car, you need to take into account your overall budget and the money you need to budget to pay for the car. It is important to pick a car that you can afford, both in the short and long-term. Here are some things to consider as you look at used cars for sale.
Overall Portion of Your Budget
First, you need to look at your overall budget. Then, you need to figure out how much you can afford to pay to take care of your car every month. This will be your entire car budget, which will then have to be broken down into further components. As a general rule of thumb, you want to keep your car expenses under about twenty to twenty-five percent of your total budget. Any more than that, and you will be starting to push into your ability to pay other expenses.
Breaking Up Your Car Budget
Once you know how much you have to spend on your car, you need to break up your car budget. Your car budget is going to have to stretch out over four different areas. Your car budget is going to need to cover your loan payments, insurance payment, fuel, and maintenance for your vehicle.
When you look at what you can afford to take out, think about how long you want to make your loan payment. The shorter the loan term, generally the larger the loan payment. However, paying your loan over a shorter period of time will reduce the interest that you pay. Keep in mind that your loan payment should not take up your entire car budget.
When you have a loan on your vehicle, you will need to carry full coverage on your vehicle, which is going to cost you more than the minimum insurance requirements for your state. Insurance costs are based on many factors, and can vary widely, so always get an insurance quote before you purchase a vehicle. In some states, the cost for insuring a car is often equal to the loan payment on a vehicle.
If you include gas in your total budget, and you already have a vehicle, look at how much you have already been spending on gas to figure out how much you will need to budget for your new vehicle. If your new vehicle has better gas mileage, you may be able to reduce your gas budget.
You are not going to have to fix your car every month, but you should put aside money every month to pay for things such as oil change, new tires, and other necessary repairs and expenses so you can easily afford these expenses when they come up.
Your loan and insurance payments are going to be fixed costs. Your fuel costs will depend on how much you drive and how you consolidate your trip. You should put aside a little money every month so that you have a fund for maintenance and repairs when you need it.
When you figure out your budget for purchasing a new car, look at how much of your overall budget you can dedicate to car expenses, and then figure out all of your car expenses so you know what size loan you can handle and what type of vehicle you can purchase.