If you have a job, you find it's difficult meeting your commitments without owning a car. However, if you're on a tight budget, buying a new or used car can stretch your budget beyond your means. You need to plan to make a purchase this large. You want to make sure that you create a budget that includes all the additional costs of owning a car. Here are a few tips on how to create a budget before buying a car:
Monthly Car Payment
One of the first things to remember when you create a budget before buying a car is the monthly car payment. Even if you buy a used car, you may find yourself making a monthly car payment. The amount of that payment depends on the original cost of the vehicle minus any down payment. You also pay a small amount of interest each month as part of your car payment. When planning to purchase a car, you need to decide how much you can afford to pay each month.
With that information, you can adjust the monthly payment by adding a higher down payment. Your credit rating helps to determine the amount of interest you pay, so it's a good idea to check it before applying for credit. Make sure that you can easily afford the payment because you'll be paying it for five or six years.
When you own a car, you must carry insurance. The amount of insurance you need varies by state, but all states have minimum requirements. A first-time car owner will pay more for insurance than someone who has carried a policy before.
Most insurance companies require a down payment on the policy and then let you break the remainder into monthly payments. There may be a charge for the monthly payment option, so read the terms carefully. Also, if you have a loan on the car, the finance company may require that you carry more insurance coverage. This covers the cost of repairs of the vehicle if you're at fault in an accident.
Some cars cost more to insure than others. These cars might be worth more or cost more to fix after an accident.
Tax, Tag, and Title
Whether you're buying a new or used car, you'll have to pay to have the title placed in your name. Your financial institute might put a lien on the title, but it's still in your name. The cost of filing the title varies by state, and it's usually a one-time fee.
In most states, you'll pay taxes and tag fees each year. The amount of taxes you pay correlates to the value of the vehicle, while the tag fee is a set amount. Many states require an emissions test each year that adds to the expense.
Gas and Maintenance
Once you pay your monthly car note, buy an insurance policy, and cover your taxes, you still need to plan for the expense of using it every day. In order to successfully create a budget before buying a car, you need to consider things like gas and maintenance. Depending on how far you drive each week, you can plan on filling up the car with gas at least once a week. Remember, the price of gas fluctuates for a variety of reasons, so make sure you provide a large enough gas allowance.
Your car also requires maintenance, such as oil changes and new tires. You can find coupons and specials for oil changes, and tire companies often have sales to make new tires less expensive, so there are ways to save money. Of course, you need to set aside some money for unexpected repairs, especially if you purchase an older car.
Buying a car is exciting. However, you want to make sure that it's a step you're ready to take and can afford. If you create a budget before buying a car, it will be easier to deal with your new expenses and help you successfully purchase a new vehicle.