When you think of the most expensive things you can buy, houses and cars probably come to mind. Although cars are indeed among your biggest expenses, they’re considerably easier to afford than homes. In fact, buying a car on a budget isn’t just possible – it’s readily achievable. Below, learn how to buy a car on a budget and hit the road with ease.
Table of contents
- How to Buy a Car on a Budget
- 14 Tips for Buying a Car on a Budget
- 1. Don’t Buy New
- 2. Buy Your Car With Cash
- 3. Be Wary of Dealership Financing
- 4. Distinguish Your Needs From Your Wants
- 5. Be Flexible In Your Search
- 6. Don’t Opt Into Upgrades
- 7. Consider Leasing
- 8. Think Twice About Long-Term Loans
- 9. Search Online
- 10. Think About Long-Term Costs
- 11. Know The Car You’re Buying
- 12. Ensure Your Credit Is In Shape
- 13. Negotiate the Purchase Price
- 14. Don’t Be Afraid to Walk Away
- Start Your Car Buying Journey
How to Buy a Car on a Budget
Before you begin your car shopping journey, you’ll need to determine your budget. The total amount you can afford for car payments depends on several factors beyond the car’s price. Really, the lowest price you see when comparing cars might not be the lowest price overall. When you incorporate the below factors, you’ll know for sure whether buying a car on your list is truly a good idea.
1. Determine Your Budget Cap
Your car budget should comprise at most 15 percent of your monthly income. Realistically, 10 percent is a better target. So if your car budget comes out to $700 per month but your monthly income is $4,000, you’ll need to lower your budget. Alternatively, you could look into the best ways to make money quickly so you can pad your budget to get the car you want.
2. The Car’s Condition
A car’s price tag is often independent of necessary repairs and maintenance. AAA has found that this maintenance costs the average new car owner 9.55 cents per mile driven. Given the average 14,263 miles an individual drives per year, your annual maintenance costs would be $1,362.12.
However, AAA’s figures apply solely to new cars, and they also don’t address the annual costs of tire maintenance, either. Cars in worse condition will cost more to repair. So when buying a car, be sure to obtain the vehicle history to get an idea of what’s new and what may need fixing. What you see can help you estimate how much – or how little – your maintenance costs will deviate from the above figure. Divide your estimate by 12 to obtain your monthly maintenance budget.
3. Insurance Costs
As of November 2021, the average monthly cost of full car insurance is $139.50. Of course, car insurance premiums are notoriously variable based on factors including your vehicle type, driving history, location, and more. As such, when car shopping, you should use a car insurance estimator to determine the possible cost of insuring the vehicles on your list. Factor this amount into your monthly budget.
4. Other Monthly Payments
Your method of buying your vehicle will inform whether monthly car payments should be part of your budget. For example, monthly payments are part and parcel of leasing rather than buying. Single-installment payments, on the other hand, are more common when you buy a used car in a private sale with the car’s owner. That said, some companies may offer monthly payment plans.
Either way, you should factor your monthly payment costs into your budget. If you use car loans of any sort to cover your payments, you should determine and calculate the interest rate as well. Use this rate to determine your monthly interest payments, and add a line item in your budget for this cost.
5. Registration and Inspection Costs
When you buy a car, you’ll have to register it and then have it inspected. Neither of these services is free. You’ll need to obtain the former from your state’s department of motor vehicles (DMV) and the latter from either a state-operated inspection station or a mechanic.
Since car registration is a state-level service, its price varies considerably by state. In Florida, for example, registration costs start at $225, whereas in Alabama, registration fees never exceed $24. The good news is that once you pay for it, you’re covered until your renewal several years later.
Inspection is an annual cost, and a relatively small one at that. The average cost is between $150 to $250 if you go to a mechanic for an inspection, which amounts to at most $20.83 per month. In some places, the inspection station operated by the DMV or the state is free to use. If you plan to go that route, you won’t have to add anything to your car budget.
6. Quarterly Oil Changes
Cars in any condition require oil changes roughly once a quarter, or every few thousand miles, depending on the model of the car, the oil type, and the car’s age. The cost of each oil change divided by three (since there are three months in a quarter) is generally manageable. When divided by three, the $35 to $125 that an oil change costs becomes $11.67 to $41.67. Record this cost as a line item in your budget.
7. Gas Expenses and General Upkeep
Gas expenses and general upkeep are perhaps the most challenging budget item to accurately calculate. These costs could vary significantly based on your car’s budget, mileage, condition, and more.
As gas goes, you’ll likely fill your tank 45 to 55 times per year. You can thus roughly estimate your gas budget if you multiply this range by the current cost of gas and your tank’s capacity. Of course, gas prices constantly fluctuate, and you’ll typically have a bit of gas in the tank when you fill it. Suffice it to say this calculation might not be perfectly accurate.
Upkeep is similarly tough to predict. You can’t quite determine when a certain bit of upkeep such as a car wash might become necessary. You’re better off setting an arbitrary budget limit based on your typical spending habits and going from there.
14 Tips for Buying a Car on a Budget
It’s one thing to set a budget using the above principles. It’s another to successfully stick to it, but doing so might actually be the easier part. That’s especially true when you heed the below 14 tips for buying a car on a budget. A tip as you read them: Don’t overthink them. They’re intentionally quite simple, as setting your budget is the complicated part, not following it.
1. Don’t Buy New
As with all tangible items, used cars are typically less expensive than new ones. So for low-budget buying, look exclusively for used cars. Seek proof of a recent inspection from the seller to ensure that the car’s lower price doesn’t come at the cost of sky-high maintenance fees.
2. Buy Your Car With Cash
When you buy your car with cash, you do so all at once. Your payment will immediately be complete, meaning you won’t pay interest or other fees. This approach lessens your monthly payments and increases the chances that you’ll stay within budget.
3. Be Wary of Dealership Financing
Just like with credit cards, car deals that are almost viscerally appealing are the ones to avoid. Dealership financing offers claiming you can be instantly approved without showing your credit score typically entail high down payments and interest rates. If you truly do need an auto loan to afford your car, you can probably get it more affordably elsewhere.
4. Distinguish Your Needs From Your Wants
Airbags, an automatic braking system, and air conditioning are nearly musts for a car. Features such as built-in GPS and a rearview camera are potentially, but not definitely, non-negotiable. Bluetooth sync for easy music or podcast listening as you drive is probably a nice-to-have. Separating features into these three categories can help you avoid overspending on cars with excess features you don’t need.
5. Be Flexible In Your Search
You might have a vision for your dream car. In real life, you may not be super likely to find that exact car if you don’t have the budget for it. Instead, remain flexible in your search – as explained above, many things you want aren’t actually things you need. Maybe, once you really look into it, the four-door sedan is a better option than the storage-heavy SUV after all.
6. Don’t Opt Into Upgrades
A new trim may look nice, but it does nothing for your car’s usability. The same goes for fancy electronic upgrades such as a new stereo. Plus, both these add-ons will inevitably depreciate with time. That means you’ll spend more now to obtain these upgrades and not regain that money if you later sell your car.
7. Consider Leasing
Unless you’re adamant about making a single-installment car payment, leasing is often a good option. You’ll pay less per month for access to a new or late-model car. You’ll also get the flexibility of trading in your leased car for another one when your contract ends. Most leases also include longer-term warranties and regular service that lowers your maintenance costs. That makes them an especially apt route for saving money on your car.
8. Think Twice About Long-Term Loans
Long-term loans are popular since, when you pay the same amount over a longer period, you pay less per installment. At the same time, though, longer terms mean more interest overall. The result could be higher total expenses even if your monthly payments are lower. As such, long-term loans might only be viable if their terms are equal to or less than your warranty. When these two terms align, you can more easily afford loan payments since repairs will be free.
9. Search Online
Traditionally, buying a used car has often meant visiting a dealership in person. That’s no longer the case thanks to the internet. Right from the comforts of home, you can compare the costs of private and dealership sales. Of course, this price isn’t the full picture – a dealer might offer a warranty or maintenance plan unavailable privately. But this cost comparison is certainly a good starting point.
10. Think About Long-Term Costs
That almost impossibly cheap car is likely priced so low for a reason. That car could well be in dire need of repairs that ultimately cost more than the pricier car in better condition. It could also be a car from a dealership pulling a bait-and-switch with low payments that mask high interest rates and down payments. Consider the full financial picture when buying your car to avoid these issues.
11. Know The Car You’re Buying
A great way to know you’re not getting saddled with excessive long-term costs is to pull up a car’s vehicle history report. You should never buy from a seller that refuses to provide this report. Once you’ve obtained the report, bring it to a mechanic or auto shop to compare against during an inspection. If the repairs needed feel manageable within your budget, you can safely buy the car.
12. Ensure Your Credit Is In Shape
It’s much easier to get approved for auto financing when your credit history is solid. If your history is shaky, you should spend some time building and growing your credit before you start car shopping. This way, make-or-break auto loans become within reach.
13. Negotiate the Purchase Price
Gunning for a lower price may seem intimidating, but it’s well worth a shot. This notion is especially true if you’re buying from a car dealer, whose very job is to negotiate prices. It’s also an effective tactic for private purchases, as private sellers typically need at least some big amount of money. So whatever price you feel is realistic for your budget and respectful of the seller, ask for it. You might walk away having spent less.
14. Don’t Be Afraid to Walk Away
If your car purchase begins to feel suspicious, untrustworthy, or just plain old incorrect, there’s nothing wrong with walking away. You can always pursue another car on your list. Really, you should only go through with a sale if it truly feels like the right choice. It’s better to wait for the right car than rush into the wrong one.
Start Your Car Buying Journey
Now that you know how to buy a car on a budget, MoneyMash can help you keep your costs low. Start with our guide to choosing a car insurance policy. This guide will hasten your insurance shopping process and help you form a budget that fits your needs. And then, with your budget solidified, your ideal car could well be within reach.