Car Buying Tips: Calculate Your Costs
It’s always good to have options, but with over 1500 vehicle choices on the market, according to TrueCar.com, it may be difficult to know where to start your search for a new car.
Start by determining your price range; this doesn’t have to be a precise number at this early stage, but rather a range of the low to high of what you can afford to pay. Sure it’s nice to look at pretty pictures of Bugattis and Lamborghinis, but you can save yourself a lot of time and keep the car buying process streamlined by focusing in on the cars you can actually afford. Plus you really don’t want to fall in love with a vehicle you later find is out of your price range. You’ll just end up heartbroken that you have to pick another car, or you’ll be so fixated on that car that you’ll end with a car that puts the squeeze on your finances.
Monthly Payments vs. Selling Price
There’s two ways to slice and dice the numbers; selling price and monthly payment. If you’re looking to finance, you should look at the numbers both ways to determine what you could afford:
- Monthly payments – Determine a price range of what you can afford to pay monthly for a car payment (including interest built in for financing).
- Selling price – Determine a price range for the final out-the-door price (including fees and sales tax) you are willing to pay for a vehicle
If you’re paying off the car in full, you don’t need to worry about monthly payments; you just need to determine a price range that makes sense for your financial situation, i.e. it’s probably not a good idea to spend your entire savings on the car. Simply put, choose a price range that will not put a financial strain on you and your family.
If you’re planning on financing, determine the maximum that you can afford to pay monthly for the car (taking into account all your other existing expenses) that doesn’t put a strain on your finances. Next, determine the maximum number of months you need to pay the car off (three to five years is typical). Then when you research new car prices, you can divide the car price by your preferred loan term, and see if that number is in your price range. As for estimating financing costs, a good rule of thumb is that the car will cost about $20 a month for every $1,000 financed on a 60-month term (for buyers with good credit). Loan payment calculators are a good tool to help you estimate your monthly car payment including interest.
Keep in mind that a down payment will help go toward lowering your monthly payment – 20% of the selling price is recommended.
Find Out What Others Paid
Now as most people know, the Manufacturer’s Suggested Retail Price (MSRP) on most vehicles (unless they are rare or in very high demand) is possible to negotiate. To get a more precise idea of what that car costs, use the Good Sam Club Auto Buying Service which uses TrueCar.com data to show you what other people actually paid for a particular vehicle by make and model and down to the options. This will show you the going market price for that vehicle and what you can reasonably expect to negotiate down from the MSRP, which will be helpful in determining the affordability of the vehicle.
Add a Buffer for Your Monthly Insurance Costs
If you’ve never purchased a new car, you should know that you will want to keep a buffer of $100-$200 for monthly insurance fees (possibly more depending on your driving record). There are actually several factors that go into determining your insurance rate (age, gender, state you live in, driving record, vehicle make/model/year) that can cause your monthly rates to be higher. As a rule of thumb, the higher the purchase price of the car, if it’s a popularly stolen car, or if it’s a high-performance or rare model, the higher the car will cost to insure.
Add a Buffer for Fuel Costs
Gas prices can be a huge cost of operating a vehicle. Estimate how many miles you drive a year and look at national fuel averages to estimate the annual fuel cost. You can divide the number by 12 to see how much that would cost you monthly. Gas prices are always fluctuating, and if you’re concerned about this cost, you may want to err on the side of a more fuel-efficient vehicle.
Don’t Negotiate off Monthly Payment Price
Jumping ahead to Step Nine of the car buying process for a second here; when you negotiate your purchase price at the dealership, we strongly suggest you negotiate off of the selling price and not off monthly payments. Think about it this way: if you negotiate off of monthly payment alone, the salesperson could present you with a very luring, more expensive car or more expensive trim of the car you came in wanting to buy. The salesperson could tell you that the vehicle actually fits your affordable monthly payment range. The catch is that you will be paying that car off for much longer than you intended.
These great car buying tips brought to you by Good Sam Club partner, TrueCar.com.