Friday, September 16, 2011

FINANCIAL ASPECTS OF OWNING A CAR

For most people, a car is a necessity. We often depend on our vehicles to get us to and from work every day, transport children to events, and even for pleasure. Because they are such an important aspect of your life, you want a vehicle that is reliable, comfortable, and maybe even a bit stylish. The vehicle choices are almost endless, so finding the right combination of wants and needs with an affordable price tag can be challenging.

Some people never buy a car, as they simply cannot afford one or they live in cities where public transportation and conveniently located shops, schools, and businesses make having a car a luxury, not a necessity. But if you need a car or you think you simply can’t live without one, there are some financial issues to resolve before you go car shopping.

The first is how much car you can actually afford. Because you may be able to finance your car with a loan if your credit is good and you have a steady income, you usually don’t have to come up with the entire cost in cash. (Then again, if you can wait to pay cash, it’s not a bad idea.) But if you’re borrowing, you will probably need a down payment in cash, usually about 10% - 30% of the total price. And you need to know how much of your monthly budget you can allot for installment payments on a car loan, plus the cost of fuel, insurance, and maintenance. One test to determine whether you have too much car (beyond your means) is if your monthly car loan repayment costs, insurance financing, maintenance and fuel costs (cost of car ownership) exceed the amount you are able to save in the month.

The second is, how important is having a car versus other financial goals? Like saving for retirement, house ownership, further education etc. Buying a car can actually make a big dent on your net worth being a depreciating ‘asset’ which requires maintenance. Vehicles depreciate rapidly, so if you finance the full purchase price, you often find yourself upside down on the loan immediately. Being upside down simply means that you owe more than the car is worth, as opposed to buying real estate for example.

Another consideration is the type and number of cars. Now, think about buying a super expensive luxury car or buying two cars because you’re married and you both work. Now you’re making mortgage size payments just to have something to drive you around.

Remember that not all vehicles are created equal. Some cars will hold their value over time better than others, and some cars have notorious maintenance issues. Do your research before buying your next car and don’t just buy something because it looks good in the commercials. You can not only save some headaches down the road by picking a reliable car, but if it retains its value you will take less of a hit when it comes time to sell.

Long story short, it’s up to you to decide how you want to spend your money. A vehicle may be a necessity, but it doesn’t have to negatively impact your financial future. If you aren’t careful, a vehicle can erode your wealth faster than anything else. Unfortunately, most of us need a car. That’s just the reality of it all. But you can take some steps to make sure that you’re keeping your car costs as low as possible so that you can focus on building wealth, not just maintaining a vehicle year after year.
Be smart about your vehicle costs. It might be nice to drive around in something a little fancy but is it worth the negative impact it may have on your long-term financial goals? That’s for you to decide.

7 comments:

car loans said...

Vehicles have different financing and maintenance costs.

perth car hire said...

There is definitely a great value in owning a car, although before purchasing, you need to adjust your budget to fit the expenses in maintaining and paying your car. Prior to owning a car, people could use public transportation or even rent a car.

auto financing said...

It's in the reckless nature of man to overspend, but that doesn't mean he cannot change his ways to have financial freedom.

debt collection services said...

The overspending culture and the inclination to have debts- that surely is a problem. People should know when and how to manage their expenses. Financial literacy, from how I see it, is undervalued and rare in our society.

bad credit auto loans said...

Overspending is a major problem in our society, especially since people can't seem to find the fine divide between needs and wants.

car loans said...

A great tip is to compute your spending and less that to your salary. then check the balance if its half of the cost of the monthly payment of the car then you can afford it.

perth airport long term parking said...

To help you stick to your budget and to get the best interest rates if you do need a loan, go shopping around and get a loan approved prior to going to the dealer. That way you can often get much more interesting deals by making the different banks compete. Also never take the first offer you get and negotiate your way into more interesting rates. It also allows you to go to the dealer and see if they can make you an even better deal while having an ace up your sleeve.