How To Budget For A Car: Getting Started

Whether new or used, purchasing a car is one of the most significant financial decisions most people make. Understanding the overall cost associated with vehicle ownership, including expenses like insurance, maintenance, and fuel prices, is crucial. When you buy a new car, it’s important to consider your needs and lifestyle and how your overall purchase may align with your budget. At Aschenbach Automotive Group, we understand the excitement of getting behind your next vehicle’s wheel and know how important it is to make a financially sound decision when seeking answers for how to budget for a car. In this comprehensive guide, we’ll help you navigate the process of budgeting for a car, enabling you to savor your new vehicle without the burden of financial strain.

Step 1: Assess Your Financial Situation

Before browsing car listings, you must clearly understand your financial health by finding answers on how to budget for a car. This includes calculating your income, expenses, and savings. Begin by outlining your monthly income alongside all regular expenses. This should include payments like rent or mortgage, utilities, grocery bills, insurance premiums, and entertainment costs.

The 50/30/20 budgeting guideline is a practical approach to managing your finances which suggests that you should allocate 50% of your income toward necessities including housing and utilities, 30% for spending on things like entertainment and hobbies, and 20% to savings and debt repayment. This framework helps ensure a balanced financial plan that addresses both your needs and wants while promoting financial security.

When considering how much to spend on a car, another useful guideline is the 20/4/10 rule. Ideally, your car should fit within the “needs” or “wants” category without exceeding your overall budget. This is especially important if you’re examining how to budget for a new car and don’t want to pay a higher price tag.

Step 2: Determine How Much Car You Can Afford

Financial experts recommend that your car-related expenses, including loan payments, insurance, fuel, and maintenance, shouldn’t exceed 15-20% of your monthly income. Understanding the monthly payment associated with different car purchasing options, such as leasing, financing, or paying cash, is crucial. For example, if your monthly income is $4,000, aim to spend no more than $800 on car-related expenses.

Upfront Costs: Down Payment

Don’t forget to account for the down payment, taxes, registration fees, and dealership fees when considering how to budget for a car. An auto loan can significantly impact your upfront costs by allowing you to finance the vehicle over time rather than paying the full amount in cash. A down payment of around 10-20% of the cost of the vehicle is often recommended. For a $25,000 vehicle, this means setting aside $2,500 to $5,000 up front.

Ongoing Costs

In addition to your car loan, remember the ongoing costs:

• Auto insurance premiums: Auto insurance is a significant aspect involving the overall cost of vehicle ownership. Costs vary by age, location, driving history, and the type of car. Shop around for the best insurance rates and look for discounts to save on premiums.

• Fuel: Choose a vehicle with good gas mileage to save on long-term fuel costs.

• Maintenance and repairs: Plan for routine services like oil changes and unexpected repairs.

Step 3: Consider Financing Options

If you’re not buying a car outright, you’ll need to explore financing options, including auto loans, to understand how to budget for a car. Auto loans allow drivers to borrow money from a lender to buy a car, and comparing different lenders, such as credit unions, banks, and dealers, and their various loan terms and interest rates can help you to find the best deal. At Aschenbach Automotive Group, we work with a variety of lenders to help you secure competitive loan terms. Here’s what to consider when financing.

Loan Terms

While a longer loan term can lead to lower monthly payments, it often increases overall interest costs. Generally speaking, car loans usually range from 36 to 72 months. Opt for the shortest loan term you can afford to minimize interest.

Interest Rates

Your credit score is a core part in determining your interest rate. A higher credit score usually translates to lower interest rates. Before financing a car, take the steps necessary to eliminate debt and raise your credit score if possible.

Pre-Approval

Getting pre-approved for a car loan gives you a clear idea of how to budget for a car and strengthens your position when negotiating with dealerships.

Step 4: Research and Compare Vehicles

With a budget in mind, you can now research cars that fit your financial parameters. At Aschenbach Automotive Group, we offer a wide inventory of new, Aschenbach Certified Pre-Owned, and used vehicles to suit every budget. Understanding your financial situation before making a vehicle purchase is crucial, as it helps in setting realistic budgets and managing monthly payments effectively. When comparing cars, consider:

• Fuel efficiency: Opt for models with higher miles per gallon to save on fuel costs.

• Reliability: Research vehicles with a reputation for longevity and low maintenance costs.

• Resale value: Consider cars that retain their value over time, as this can save you money when it’s time to trade in or sell.

Step 5: Factor in Additional Costs: Car Insurance & Warranties

Beyond the sticker price, there are other costs to keep in mind.

• Extended warranties: These can provide peace of mind for unexpected repairs but come with an additional upfront cost.

• GAP insurance: This insurance protection covers the gap between the worth of your vehicle and the remaining balance on your loan in the event of a total loss.

• Accessories and upgrades: From roof racks to infotainment systems, these extras can add up quickly.

Why Budgeting Matters

Budgeting for a car goes beyond just the initial purchase and takes into consideration whether the vehicle will remain a valuable and manageable asset. Overspending on a car can strain your finances and impact your ability to save more within your budget. By following these steps on how to budget for a car, you can confidently purchase a vehicle that works with your financial needs. 

Why Choose Aschenbach Automotive Group?

At Aschenbach Automotive Group, we’re committed to making the car-buying experience as seamless and stress-free as possible. From our extensive inventory to our knowledgeable staff and financing experts, we’re here to help you find the perfect vehicle within your budget. Visit us today at any of our locations across Pennsylvania, Maryland, and Virginia to explore our vehicles and take the first step toward owning your next car.