Planning for the future is very important. The pandemic is a wake-up call to many who have just lived by the day. The wealthy increased their portfolio during the pandemic while the poor lost significantly. In the future, there will be no middle-class bracket. It is either your wealth or your poor. The rich have grown their portfolios because of their high-risk appetite. It is important to budget for even minor expenses in daily life. For example, purchasing a car that can be used for car sharing is more economical than a luxurious car.
Moreover, several financial tips that may help you while making that car purchase are;
Make sure not to buy any add-ons
After talking to the salesperson at the car dealer shop, one gets tired due to bargaining and understanding terminologies. The financial manager may take advantage of your vulnerability and sell you add-ons that are always overpriced. The add-ons may include;
While making a car purchase, it is advisable to say no to everything. The extended warranties can always be bought later. Additionally, the gap insurance can be obtained through the insurance company at a much cheaper price.
Consider purchasing a used car
Before making any purchase, it’s important to view the ratings and reviews about the brand and model you want to purchase. Such feedback will help in figuring out the repair and maintenance expenses. There are so many used cars that are in good condition that can last many more thousand miles. The car expenses should not be more than 20% of your salary. The expected and unexpected wage should be between 10-15%.
Get a pre-approved loan before going to a car dealership
Getting a loan approval before the purchase can act in your favor in many different ways. One, it acts as your bargaining chip as the amount will limit your purchase. Secondly, it will reveal any problems associated with your credit score and if you need to get some erroneous information off that credit report. Thirdly, you will get the best dealership in a favorable interest.
Know the factors impacting your loan
Whether you choose mainstream banking, a recognized lender, or any other financial institution for a loan, it is important to internalize and understand the terms stated. Inputs that have a major influence on the total cost of the loan and the monthly payments are:
- APR (Annual Percentage Rate) is mostly 0% and may have a small effect on the monthly payments
- Duration of payment. A longer-term repayment may lower the monthly payments. However, it may increase the total amount of loan to be repaid
- The down payment. A higher down payment or a small amount of loan may decrease the monthly payments
Difference between lease and loan
Similar to owning vs. renting, leasing and loaning a car use the same mechanism. When you hire a vehicle to finance its cost, when you are renting it. However, while lending a vehicle which means you buy, you subsidize the whole cost regardless of the time and miles used. Leasing has some disadvantages:
- You may be charged mileage fees if you exceed the limit
- You may incur wear and tear penalties if you return the vehicle in bad condition
- In case of any major life changes. Your dealer may ask you to pay an extra fee to terminate the lease agreement early
Nonetheless, there is always the option of purchasing the leased car at a much lower cost after the contracted period. Always do your research before walking to a dealer shop and get your finances right.