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How to be Financially Prepared to Buy your First Car

"The car has become an article of dress without which we feel uncertain, unclad and incomplete in the urban compound. " - Marshall McLuhan

Buying your first vehicle is an important milestone in your life, and you want to do everything right. But like any other big purchase, buying a car can be an overwhelming experience for anyone. If you want to make your first vehicle purchase and are unsure about how it is going to fit into your financial plan, here are some tips for you to keep in mind.

Calculating the expenses

Before you set your heart on a particular car, calculate the costs and arrive at an overall budget. The most common mistake people make is thinking in terms of monthly repayments of an auto loan, and the car dealers are much too aware of it. They will thus try to sweeten your deal by trying to increase your tenure or lowering your interest rate so that your monthly outgo seems affordable to you. But there are other expenses you should take into account as well. These include:

  • Fuel costs- Depending on how much you are planning to use your car, get the mileage and make some mental notes about how much you will be spending on fuel each month.
  • Maintenance costs- Your car will not be as good as new always and will run into trouble sooner than later. Check out how expensive the spare parts of the car you are eyeing will be and how much you may end up spending on repairs.
  • Insurance costs- Dealers will often bring up insurance after you have already made up your mind about going in for the purchase, but you may discover that it will leave you poorer by quite a neat sum of money each year. This may through your annual budget out of gear.

New vs used car

You may think of your car as a great investment, but the truth is that vehicles depreciate in value quicker than you think. Even if you buy a new car the value of it will decrease by almost 50 per cent in just the first two years. Therefore, if you think that you will be overstreching yourself to buy a new car you may consider buying the same brand which is about two years old. The advantage though is that you have a car that is as good as new, the costs are considerably lesser. However, carry out enough scrutiny before you zero in on a car dealer.

The down payment

Now this is the tricky part of a car purchase. Most dealers and banks will lure you into making a small down payment and convince you that your EMI is affordable, so it will in no way impact your finances. But what they are not telling you that you will end up paying up more than what the car is worth if you stretch your loan repayment over a longer tenure. The prudent thing therefore is to make a 20 percent down payment of the total price of your car, so that your debt burden on your car is considerably lighter.

But in order to do so, you should save up well in advance, say at least a couple or three years ahead. However, that is a utopian situation as people often have trouble following discipline, even when saving up for an emergency fund is concerned, let alone saving for a car. However, you must try and put down as much as you can afford without throwing your budget completely out of gear. Cutting down on other expenses may be a possible solution. The rule of the thumb says, that for every Rs 1000 that you put down as down payment, your EMI goes down by Rs 20. Now that should be motivation enough to make a larger down payment on your first car!

Buying your first car is a major decision for anyone who is making a large purchase for the very first time in his or her life, so make sure your decision is a well thought out one and does not hamper the progress towards meeting your other financial goals.

Buying your first car is a major decision for anyone who is making a large purchase for the very first time in his or her life, so make sure your decision is a well thought out one and does not hamper the progress towards meeting your other financial goals.