If you’ve decided to buy a car, you’re probably researching different makes and models and deciding whether to buy a new or used vehicle. But that is just the tip of the iceberg: because buying a car is a big financial commitment, things like budgeting and car insurance are important considerations.
If you’re thinking about buying a new or used car, here are the three biggest financial considerations you’ll want to keep in mind.
1. Budget
How much you can afford to spend is one of the most important factors to consider when buying a car. If you are buying a car outright, you need to know how much you can afford to pay for your car without taking out a loan.
You’ll need to remember to factor taxes, registration, and other potential fees into the overall cost so you don’t go over budget.
If you are taking out a loan or a lease on your car, you’ll need to consider both the overall cost of the vehicle and how much you can afford to pay each month. While it is possible to spread your payments out for five to seven years, loans that last this long will cost you much more in interest over time than a loan that only lasts two or three years.
You should also factor car repairs and maintenance into your budget, especially if you are buying a used vehicle.
→ Learn about the best time of year to buy a car
2. Financing
If you are going to finance your car (that means getting a car loan), doing some research before walking onto the lot can save you a lot of money. Check your credit score, check to see if you have access to any discounts or other benefits through employer or group affiliations, and gather any documents (like your driver’s license, pay stubs, and proof of insurance) you may need when applying for a car loan.
If possible, you’ll want to get pre-approved for a loan before you walk onto the car lot. This will likely get you a better rate, and it allows you to figure out how much you can actually afford before a salesperson tries to upsell you on a more expensive car.
You should also call your insurance company ahead of time to ask about purchasing gap insurance, which the dealer will try to sell you as part of your finance package.
Gap insurance pays the difference between your insurance payout and your loan if you total your car while you’re still making payments on it. Buying gap coverage through your current insurance plan will be much cheaper than buying it from a dealership.
→ Learn about how your credit score affects your car insurance
3. Car insurance
Auto insurance is a vital part of buying a vehicle. Most drivers should purchase full coverage insurance, especially if they are buying a new car. In fact, certain coverages, like comprehensive coverage and collision coverage, may be required by your lender if you are financing your vehicle.
Car insurance costs vary based on a number of factors, including your driving history, your ZIP code, and the make and model of your new car. Because some cars are more expensive to insure than others, make sure you know how much you’ll pay for car insurance before you purchase a vehicle.
Typically, you’ll have to show proof of insurance coverage before you can take your new car home, which sometimes means buying a policy before you buy a car. If you know the VIN of the car you’re buying, you can buy a policy ahead of time and set it to start the day you get your new car. If you don’t know the exact vehicle yet, you can shop around and get everything in place so it’s ready as soon as you do.
If you already have car insurance, most companies offer a grace period during which your new car is automatically covered, so you’ve usually got at least a few days before you have to officially add a new car to your policy.
→ Learn about how to find cheap full-coverage car insurance
Frequently asked questions
What should I look for before buying a car?
Before you buy a car you should go online and compare prices and read reviews, both from individuals and trusted third-parties like Consumer Reports.
What matters most when buying a car?
The biggest things to consider when buying a car are price, safety, and quality, but what matters most in a car is that it meets your needs. For example, a parent of five looking for a family vehicle probably wouldn’t buy a sports car, no matter how low the price, because it isn’t big enough to transport their whole family.
What questions should I ask when buying a car?
When buying a new car, you’ll want to ask questions about features on the vehicle, the cost of the car, and what financing options you have. When buying a used car, you’ll want to ask questions about the age of the car, the mileage, and what repairs may need to be made.
