About 10 years ago, I bought the sports car of my childhood dreams. Oops! After about a year of looking at it gather dust in the garage -- no, I didn’t want to risk any dings in a parking lot -- I sold it. And yes, I sold it for significantly less than I paid. When buying a car, it’s easy to get caught up in the excitement and forget about the finances. Had I honestly asked and answered number four below, I could have avoided a costly misstep.
To help you avoid a similar mistake, here are several questions to ask yourself before you buy your next vehicle:
Does it fit my budget? Obviously, that’s a question that will vary based on your situation, but if you can cap all your transportation costs at around 10-15% of your gross income, you should be on track. That includes gas, maintenance, insurance and the like. Yes, I know that can be a tall task, but the goal is to have less financial stress and more flexibility.
Can I afford what it’s really going to cost? Notice, how I slid maintenance, gas and insurance into the auto budget discussion above? You should too. When you’re making the decision, factor in all the costs to determine if you’ve got a good fit. In the opening, I didn’t mention the hit our car insurance premium took when I parked that beautiful German rocket in my garage…ugh!
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Am I getting a decent loan? Too often, I run into people with high double-digit interest rate car loans. In today’s interest rate environment that’s a problem. If your credit history keeps you from qualifying for anything but that type of loan, then you should buy nothing but bare-bones transportation while you work to put yourself in a better credit position.
How long will I be paying? Remember, the longer the term of your loan, the more you rack up in interest and the more likely you’ll be upside down. Yes, that means the eight-year loan you’re looking at to squeeze too much car into your budget is a bad idea. Shoot for a loan of five years or less.
Does this vehicle fit my lifestyle? I couldn’t even fit my golf clubs in the car, let alone my kids and dogs. Who was I fooling? Buy something that works for you (and perhaps, your family) and a vehicle you can drive for years to come, not something that you’ll regret in short order.
If you’re heading down the path toward a purchase and can’t answer all of those questions with a resounding “yes,” it may not be the right time or the right vehicle to buy.
Have you experienced buyer’s remorse from a questionable vehicle purchase?
About the Author: JJ Montanaro is a Certified Financial Planner® professional and part of the Military Affairs team at USAA. He’s a graduate of the U.S. Military Academy and has over 20 years of financial planning experience.
Disclosures: "Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements."
The information contained is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional advice before acting on any information you may have found in this article. This article in no way attempts to provide financial advice that relates to all personal circumstances.
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