Ahhh the joy of a new car. It’s one of the biggest and most exciting purchases you make in life. But before you take that test drive, the first step is to research how much you can really afford so that it doesn’t end up draining your monthly budget.
6 Tips for Car Buying
From fuel and parking to insurance and maintenance, costs can add up. Below are six tips to help steer you in the right direction:
1. Let Your Paycheck Be Your Guide
Many financial experts use the simple rule of thumb that car payments should total no more than 10% of your monthly net income and no more than 20% total for all related expenses such as gas, insurance, repairs and maintenance. There are online calculators available to help you factor this number quickly. Automotive sites, such as Official Kelley Blue Book, Edmunds and Autotrader, also have car finder search tools to show you different models listed by price for comparison.
When making this decision, remember that it’s important to leave yourself a cushion, not only to pay other bills but also for entertainment, vacations and retirement savings.
2. Check Your Savings Account
For most people, purchasing a car is a long-term investment, like a home or college education, that will require some financing. According to Experian State of the Automotive Market report, the average new car loan is for $29,880 with a term of 68 months or five and a half years.
Most experts say that you should plan for a 10% to 20% down payment to help you save on interest charges later. But don’t dig into your emergency savings to increase your down payment as you will want to have something on hand in case the unexpected occurs.
3. Protecting Your Investment with Car Insurance
Before you walk off the lot with your dream car, one key first step is a call to your insurance agent. They can help you determine, based on a variety of factors, how much coverage you will need and what policy will work best to fit your budget, says Rural Mutual Insurance agent Jacob Shropshire. Know the minimum car insurance requirements in Wisconsin, but consider adding more coverage to protect you and your car:
Wisconsin Minimum Car Insurance Requirements
- $25,000 bodily injury liability per person
- $50,000 bodily injury liability per accident
- $10,000 property damage liability per accident
- $25,000 uninsured motorist coverage per person
- $50,000 uninsured motorist coverage per accident
In addition, the latest safety technology and the type of car model will impact your car’s purchase price and the cost of your insurance premium.
Your car insurance policy should include:
- Property Damage Liability Coverage: If you’re responsible for an accident, this covers the cost of damages you unintentionally cause to someone else’s property.
- Comprehensive Coverage: This covers situations other than an accident, like vandalism, hail, fire and the ft.
- Collision Coverage: This helps you repair or replace your vehicle if you collide with another vehicle or object.
- And more…
4. Don’t Forget the Hidden Costs When Buying a Car
The “out the door” price of your car is always more than you would imagine. That’s because you need to account for a few typical extra costs like tax — often an extra few thousand dollars tacked onto the purchase price. There are also registration fees which are determined the Wisconsin DOT.
Lastly, there are dealer documentation fees that cover administrative costs related to title, registration and other costs involved with the car purchase.
5. Assess Your Car Needs
Buying a car is a very personal choice and some like to make a statement. Whether it’s “I’m eco-friendly and practical” or “I’m sporty and fun-loving” — it’s the fun part of the purchase and there are a lot of options out there.
However, it’s important to also assess your specific needs and how that will impact overall costs. Asking yourself questions such as, “How many passengers will I usually need to carry?” and “How many miles do I plan to drive each day, month, year?” will help you determine must-haves and help you avoid paying for features that you won’t use. In Wisconsin, you should definitely consider having four wheel drive.
6. New Car Versus Used Car
The age-old debate continues as to whether it’s worth it to spend more for a new car. After all, the purchase depreciates by 20% or more after the first year of ownership and continues to lose value as time goes on. Sadly, by the time you are finished paying off your loan, your vehicle will most likely be worth a lot less than the amount you paid for it.
Used cars, on the other hand, can save you money up front. However, you will need to consider that you may have to pay for maintenance or repairs much sooner.
Taking the time to research how much you can afford will help avoid frustration and unexpected surprises later.
Rural Mutual Insurance can help you understand what insurance state law requires and what auto coverage levels you need. We’ve been protecting the people who live and work in our state since 1934.
Contact your local Rural Mutual agent today for more information and insights on how to select an auto insurance policy that’s right for you.
