When you set out to buy a new car, it’s very important to know what you’re working with. That means both knowing the price and various additional costs of the car you want, and how much of them you can realistically afford to pay. In this article we’ll walk you through how to figure all that stuff out and how to budget for a new car. 

Personal Budget

Let’s start with the easier step first, determining how much you have available to spend. This is going to be an exercise in gathering information more than anything else. There’s two primary numbers you’re going to need to worry about. How much money you have on hand right now, and how much you have on average per month. 

The on hand money will most likely be in a savings account so that keeps things simple. For the monthly amount you probably want to write some things down. First get a record of all of your income for a month and add it all together. Then get a list of every expense you pay in that same month. Bills, groceries, Netflix subscriptions, write it all down and add it all together too.

Then you can take the net income minus net expenses to get your remaining monthly total. Remember that if you’re replacing an old car then the expenses tied to that old car will not apply to the budget of your next car. 

Car Costs

Now we need to determine the cost of the car you want which is much harder for many reasons, the most important being that you can never be 100% accurate and some of these numbers will have to be educated guesses. 

Your initial car purchase is likely to be split into two parts: The Down payment, a lump sum you pay upon purchase of the car, and loan repayments, monthly bills that you pay back over the next several years with interest. The down payment is the easy one because generally you get to determine what percentage of the car’s value you’d like to pay.

The loan payments on the other hand are going to have to involve some guess work, interest makes things very complicated as you can’t just take the loan and divide it by the amount of months, you also have to factor in interest, and both are also going to be affected by your chosen down payment amount. 

And there’s more costs to factor in, remember to think about the insurance payments and the cost of fuel for the new car as well, both of which you’ll have to make educated guess about. 

Thanks for reading! Hopefully you have a better understanding on how to budget for your next car loan. If you have any more questions, please don’t hesitate to contact us here.