Spring is peak season for purchasing a new vehicle. And when it comes time to make those big purchases, many people are enticed by lender promises and marketing schemes.
Before you even think about financing your next ride, stop. Take a moment and ask yourself these three critical questions, or those whopping monthly payments might bring on bigtime buyer’s remorse.
Is the full amount of the loan less than half of your annual income?
As a general rule, you never want the full amount of debt on your vehicles to be more than half of your annual income. If it is, that means you have too much money tied up in things that are going down in value. Crunch the numbers and be honest about your household finances and needs—and make sure you’re looking at vehicles you can actually afford.
Can you pay off the vehicle loan quickly?
Are you willing to do the hard work involved in making loan pay-off a priority in your life? Before you make the purchase, consider how it will impact your budget to make that monthly payment. Could you bump up your payments and pay off the loan more quickly? Is there an early pay-off penalty? Make sure you understand every aspect of the loan and have room for it in your budget before you sign on the dotted line.
Can you wait to make the purchase?
Before you set your heart on leaving the dealership in a shiny new vehicle, take a step back and ask yourself if there is any way you can put aside cash and wait to make the purchase outright. What would it look like to have a car with no monthly payments? Or, could you save up a bigger down payment and decrease your monthly payment or loan payoff time? Taking the time to explore your options could mean more money in your pocket now and later since you’ll save on interest and fees. No matter what the dealer says, you are not in a hurry.
Keep in mind, cash is king.
If you can create space in your budget for a monthly loan payment, guess what? You could also pay yourself a car payment every month and save to pay cash for your next vehicle!
Yes, you may have to make some sacrifices and get creative so that your current vehicle situation continues to work for you. But, with a little planning, you can make a big purchase without the added price of interest.
If you’re still not sure how to make your next big purchase strategically, see how we can help today!