Your vehicle, after your home, is one of the largest purchases you’ll ever make. For this reason, it’s a decision that merits careful consideration and planning. While you may be tempted by the latest models and gadgets, one of the biggest mistakes prospective car owners make is buying a vehicle with monthly payments that are higher than they can afford.
Obtaining used car financing in Arizona requires preparation on your part. Here’s what you need to know.
The Best Way to Buy a Car
If you ask a financial planner the best way to finance or buy a car, they’ll likely tell you, “Buy it new, buy it with cash, and keep it for as long as possible.”
While this may hold true in terms of interest, it’s not feasible for most people. Considering that economic models of SUVs start at $30,000 or more, and you’ll find that the majority of people don’t have that kind of cash lying around.
The next and the most popular option is financing. How much you can afford should be pretty obvious if you’re paying in cash, but becomes murkier when you have a monthly payment. There are a few important considerations when choosing a car with a monthly payment.
First, you’ll have to decide how long you want to take to pay it off. Financing arrangements exist in 3-, 5- and 7-year terms, though some may offer other arrangements.
Generally, you don’t want a term longer than 60 months (5 years), since it increases the chances of being underwater or owing more than your car is worth. A longer arrangement may mean that your monthly payments will be lower, but you’ll also be paying more interest. Opt for a good balance between the features you want and a monthly payment you can afford.
What’s a ‘Good’ Monthly Payment?
Everyone’s financial situation is different, so the answer to this question is unique. Ideally, after factoring in the cost of insurance and maintenance, you should still be able to save at least 10 percent of your income each month. If this isn’t possible, your monthly payment is too expensive.
Keep in mind that if you’re financing a car, your insurance payments will reflect it. Generally, insurance companies require more comprehensive coverage on vehicles that have financing attached. Ask your insurance company for a new quote and add these to your calculations.
New vs. Used
Many people find that in light of these circumstances, they cannot afford a new car. Used cars are frugal alternatives that come in many shapes, sizes and prices.
For a couple of thousand dollars, you can buy a vehicle that will get you from point A to point B, but may require more maintenance. Spend up to $10,000 and you can actually get something pretty nice. When purchasing a used car, factor the cost of maintenance into your budget.
Arizona Used Car Loans vs. Leasing
There are advantages and disadvantages to leasing and buying vehicles. With a lease, you’re getting the latest and greatest, but you won’t own it – so you’ll always have a car payment. You’ll also be locked into a certain number of miles each year, so long trips may be out of the question.
With a used car loan, you’ll own your vehicle at the end of the financing term without having to worry about additional payments other than maintenance.
Other Financial Considerations When Planning a Car Purchase
Once you’ve decided what you can afford and how you’re going to pay for it, the next important consideration is when to buy. You can save significant money purchasing a vehicle at certain times. Shopping on the last day of the month, for example, can save you significant money because dealerships must meet certain quotas to receive incentives from manufacturers, and salespeople must make minimum sales per quarter.
When purchasing a vehicle, a dealer may also try to sell you extras like an extended warranty. Unless your chosen vehicle has well established mechanical problems, these aren’t necessary. Rust proofing and paint protection are other examples of “extras” that don’t make much financial sense to those on a budget.
When You’re Ready to Buy a Vehicle
When you’ve made a decision based on your financial situation, it’s time to start shopping. If you’re still not sure what you can afford, come in and speak with the financing experts at Red Mountain Funding. We’re here to make the approval process simple and get you into the car that’s right for you.