How to Budget for a New Car

Are you looking for a hot new set of wheels? Or, maybe just something to get you from point A to point B?

Either way, you have plenty of options to consider when it comes to choosing your next car. We can help you decide which one will work best for your busy lifestyle—and save you the most cash!

Key deciding factors when getting a new car

There are a few major factors good to keep in the back of your mind when making your decision.

Budget

How much should you spend on transportation? Make sure your budget is up to date so you’re working with the right cashflow.

Loan

It’s common to get an auto loan lined up before buying or leasing a car. After all, not all people have $30K+ in their bank accounts to just drop on a car! There are lots of different lenders who have different car loan deals. Shop around to find the one that’s best for you. And, once you settle on your new loan, keep in mind that you can often refinance if rates or your situation changes. Typically, people refinance their car loan if their credit score sees a significant lift, if car loan rates come down, or if they simply need a lower monthly payment.

Insurance

Whether you’re buying or leasing, you’ll most likely need to purchase car insurance since car insurance is mandatory in most U.S. states. There are different types and levels of coverage, so the monthly fee can vary. Always shop around for the best auto insurance cost.

Flexibility

How important is the flexibility of the option you choose? Think of “flexibility” in terms of vehicle interior size, availability, towing capability, trunk space, etc.

Review your options

Buy

Buying your own car can have some major perks. Before deciding to buy your ride, consider whether you want to buy a new or used car. Maybe you value being the first owner of your car and don’t want to worry about any previous damage or wear and tear. Or, maybe you’re more interested in the lower sticker price and can find a solid deal on a pre-owned car.

Pros:

• All yours! Accidentally spill your iced latte on the passenger seat while in a hurry to get out the door? No need to worry about additional fees from the leasing agent. After you finish paying off the loan on the car, it’s 100% yours.
• Resale value. Once the car is completely in your name, you have the ability to do whatever you please—sell, trade in, sit on your driveway. You can make some money back on your big purchase if you eventually decide to sell it or trade it in for a new one. Or, you can run it down to the ground before opening your wallet for another car.

Cons:

• Any repairs are on you. Owning your own car can add up, if it begins having maintenance issues. All cars require ongoing maintenance like tire rotation, oil changes, washing and waxing, filter changes, and so forth. But, if you’re consistently paying more than a monthly car payment on your repairs, it might be time for a new car. Make sure to check into the condition and reliability of the car before making any big decisions.
• Payments can be costly. Monthly loan payments will most likely cost more than paying for a leased car, but remember that the payments will eventually end and the car will become completely yours as you pay down that principal.

Lease

Another option worth considering is leasing your next car. This means you pay the leasing agent a fixed monthly fee for a specific amount of time to “borrow”, use and drive the car. You may trade it in the for a new or different car once your lease ends. Or, you can simply turn it in and not get a new car.

Pros:

• Mix it up! If you would like to change up your ride every few years, leasing may be the best fit for you.
• Lower monthly payments. The monthly payments for leasing a car are typically less than if you were to take out a loan to buy your car, since you’re only paying for a (still significant) portion of the car’s sticker price.
• Won’t resell the car. Once your lease is up, you’ll simply return your car to the dealership. You won’t have to worry about coordinating the sale.

Cons:

• No resale value. Since you don’t own the car, you won’t be able to resell it once you’re ready for a new car. Instead, your payments will simply go toward borrowing the car, without investing in the asset for yourself.
• Stuck through the entire lease. If you want to get a new car in the middle of your lease, you’ll most likely have to buy yourself out of the lease. Essentially, even if you gave the car back to the dealership early, you’d have to pay the remaining balance of your lease.
• Higher sticker price. If you decide to buy the car after your lease is complete, the dealership will charge you the residual value of the car. More often than not, your total investment in the car will far exceed the initial sticker price of the car.

Uber

It may sound crazy, but for some, relying on your friendly neighborhood Uber or Lyft driver when you need a ride can be a simple and cost-effective solution to choosing your next car (or lack thereof!).

Pros:

• You’ll have your own personal chauffeur. No need to stress over the 5 o’clock rush hour on your way home from work. Now you have a driver that will take you almost anywhere you need to go.
• Only pay when you need it. While you’ll need to budget for these rides, you won’t have to worry about costs like insurance and car payments that come with buying or leasing.

Cons:

• Not always on demand. You may have to wait a little bit for your driver to show up, or they may not always know the quickest route to your destination. If you like to be in the drivers’ seat (pun intended), maybe a ride service isn’t the right choice for you.
• Costly if not done correctly. Only choose this option if you don’t plan on driving as often. Your ride service bills can rack up fast and become more costly than buying or leasing a car if you use them too often.

Getting a new car—whether that’s “new” or “new-to-you” or leased—is an exciting purchase! It’s also a very big life decision that has repercussions on your finances. Make this decision very carefully, and try not to skip any steps.

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