How to Afford a Car

An automobile is a rite of passage, a ticket to self-sufficiency, and the utilitarian vessel of everyday life. That said, the price of car ownership is high, and in an economy as starved for dollars as this, it can feel very burdensome. There are so many hidden car expenses beyond the sticker price, which is why you should approach the car-buying process with a plan.

In this post, we explore the actual cost of car ownership and a few tips that may help to relieve some of the financial load without compromising the quality or safety of your car ownership experience.

What is the True Cost of Car Ownership

The true cost of ownership of a car is higher than the front sticker. While you might be so wrapped up in the thrill of purchasing a new or used car, just know that you are not just buying the car, but there’s also the ongoing expense of insurance, maintenance, repair, registration, fueling, and depreciation. A typical car in the US costs around $10,000 a year to own, according to the AAA. It comprises both direct costs (like loan repayments) and indirect costs (like depreciation and interest).

This includes the significant expense of maintenance. It also adds up on the dust and all such floors to clean and windows to scrub. Market conditions also lead to variation in fuel prices, which is another variable cost. In addition, insurance premiums depend not only on all of these but on the age, location, driving ability, and type of car of the driver. All this amplifies the need for new car shoppers to consider the total cost of ownership before signing on the dotted line.

Setting a Realistic Budget for Your Car Purchase

A sizable step in the car-buying process is finding out how much you can afford to spend. As a general rule of thumb, aim to keep car expenses (including your car payment, insurance, gas, and maintenance) at 15% of your monthly income. As another example, if your net monthly income is $4,000, then your total car expenses should come in at or below $600.

Finally, the down payment size is another thing to remember. The more you pay upfront, the lower your borrowings will be — and lower interest rates are also available to you, translating to savings over the long-term. It is also wise to factor in unexpected emergencies, or repairs you might have coming up. This cushion will help you not feel the pinch if any unusual expenses crop up.

Exploring Different Financing Options

Choosing a vehicle starts with the finance, where we can pay back in monthly installments. Auto loans are what most buyers depend on to finance their dreams, but being aware of the different types of the type of financing can help you make a smart choice. The typical choices are conventional bank loans, credit score, unions, and dealership financing. They both have pros and cons.

Reputable banks provide competitive interest rates but may have stringent requirements. Credit unions, whose member-first model usually means lower rates and more responsive service. Dealership financing can be convenient but also has interest rates or fees. Scouting out different offers and securing a loan preapproval before you ever set foot on a dealership lot can give you an edge in negotiations and keep you away from high-rate or bad deals.

Government Assistance Programs for Car Buyers

For many on a fixed income, when you add extra expenses, such as a new car payment and the potential for a new payment, government assistance programs can help make car ownership more attainable. In the background, programs like the Low-Income Vehicle Repair and Assistance Program (LIRAP) or similar state-administered programs have been put in place to extend assistance to low-income families looking for a vehicle for work or medical purposes.

Likewise, other programs focused on fuel efficiency, like Cash for Clunkers, create incentives for trading in aging vehicles. There are specific grants or loans available for veterans and people with disabilities to help with a vehicle they may want to purchase or to make modifications they need.

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Tips for Saving Money on Car Insurance

One of the biggest recurring costs you will have is your car insurance but there are several strategies that can help cut down on your premium. Always compare quotes from different providers. Many insurers also offer discounts for bundling, maintaining a clean driving record, or completing a defensive driving course.

A larger deductible might also reduce monthly premiums, meaning you’ll be responsible for more before any claim is paid. Check out usage-based insurance programs, in which your premiums are linked to how you drive and how much you drive. This can save them a lot of money, especially for those who drive under the mileage cut-off.

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Finding Affordable Cars in Your Area

When you buy a car, look for something more than your regular car dealer. You can usually find competitive prices at local auctions, private sellers, and online market places. Several dealerships run certified pre-owned programs whereby vehicles are inspected before being sold with a warranty so they cost less than new cars while still providing some peace of mind.

Or also buy at a low price, high probability. If dealerships need to hit particular sales numbers, they will provide you with a rebate towards the end of the month, quarter, or even year. Likewise, look for a model a year or two older that still has a warranty: it can save you the big-old-car-is-worthless scene.

Read: How to Save Money as a Teenager for a Car

The Importance of Quality in Affordable Cars

Affordability matters, but corners cut today can cost you more tomorrow. A cheap car that breaks down regularly or needs expensive repairs will eat up any savings you gain in the first year. These are the kind of specs to find in a budget car, but the latter two can be tricky to pin down — and crucial to take seriously.

Conduct thorough research on the particular make and model you’re considering. Reliability ratings and customer feedback, such as those available from Consumer Reports and J.D. Power, are good places to start. Investing in a pre-purchase inspection from a mechanic you trust is also justifiable to avoid secrets.

How to Negotiate Car Prices

Negotiation is an integral part of purchasing a car. The key is preparation. Find out the market value of your preferred car, and know what the dealer’s cost is. Be prepared with some form of a ceiling price before you settle on a deal, and move on if the deal doesn’t work for you financially.

A second method is to bargain over the “out-the-door” cost, the purchase cost in addition to tax obligations, costs, and bonuses, as opposed to the sticker product alone. If you are getting financing through the dealership, read the fine print. You do not want to end up with a bunch of hidden fees or an interest rate that is way higher than it should be.

Read: How to Save Money for a Car

Creative Solutions for Reducing Car Expenses

When ownership is a struggle, rent or lease alternatives, such as a carpool, rideshare, or even a car subscription, can provide a vehicle that is cheaper than owning one. Leasing isn’t the most cost-effective option in the long run, but it suits some drivers who prefer rolling on new wheels every two to three years with lower monthly payments.

Use a car-sharing service like Zipcar, which allows you to rent a car by the hour or day. Also, normal preventive upkeep on your existing vehicle can delay the need to buy a brand-new one.

How Beem Can Help With Car Costs

Beem is designed to take some of the stress out of car ownership, with features that help you budget, save, and have funds on demand for emergencies. Things like automatic savings plan, tracking car expenses, etc. can help you manage costs regularly. Download the Beem app here.

Beem helps borrowers with sub-optimal credit profiles. With flexible financing options, Beem helps them survive without the need of a cash-breaking scenario due to an unforeseen repair.

Conclusion

Affording a car is not simple, but you can do it with a few proven tricks and resources. By researching the cost of ownership, knowing your budget, exploring financing options, and finding assistance programs available to you, you can drive away confidence and happiness. If you’re buying your first car or an upgrade incompatible model, it’ll take planning and that elixir of wise choices, and your vehicle will do right by you and not also turn your wallet inside out in the process.

FAQs on How to Afford a Car