5 Financial Moves to Make Before Buying Your Next Car

Want to buy a new set of wheels? Before you head to the dealership, there are a few steps to take to make sure your finances are ready. A little planning now can save you a lot of stress later. 

Building a stronger financial safety net is not about being perfect with money. It is about putting a few simple things in place so that, when life happens, you are ready for it. Here is where to start.

Start with a Savings Cushion

1. Think about the big picture

The sticker price is just the beginning. Owning a car comes with other expenses that can add up fast:

• • Insurance
    Insurance costs can vary by the car type, age, mileage, and your driving history. 
  • Registration and taxes
    Consider those added expenses, like sales tax, registration and title fees. 
  • Gas
    Gas prices always seem to be going up, so be sure you factor in your daily commute.
  • Maintenance
    Think about regular maintenance like oil changes and the unexpected stuff.

Before you fall in love with a car, make sure you can comfortably cover all of these on top of the payment.

2. See how much you can afford

It’s easy to get caught up in the moment and buy more car than you can afford. To make sure you don’t get in over your head, do a little math. 

Aim to keep your total car payment (including additional costs like insurance and repairs) at or below 15% of your monthly take-home pay. So if you bring home $3,000 a month, aim to keep your payment around $450 or less.

If you want to be more conservative, keep costs under 10% of your take-home pay. 

3. Save for a down payment

You don’t always need a down payment, especially if you have good credit, but putting some money toward your car when you buy it can help lower your monthly loan payments. A good rule of thumb is to put down 20% for a new car or 10% for a used car. 

If you don’t have that much saved yet, that’s okay. Get started now by opening a Cotton Belt savings account that’s dedicated to saving for your new car. Consider setting up automatic transfers on payday to start putting aside money for your purchase without needing to think about it.

4. Plan for the unexpected

One of the worst-case scenarios would be to fall behind on your loan payments and lose your car. This can happen when there are unexpected repairs or other surprise bills that hurt your budget.

It’s important to give yourself a rainy day fund for emergencies, so you don’t miss payments. Before you take on a new car loan, work on building up your savings so you have a cushion when extra expenses crop up.

Even a few hundred dollars set aside can make the difference. Just like saving for a down payment, open a dedicated savings account and set up automatic transfers to pay yourself and build up your emergency savings.

5. Talk to us before you go

We’re here to help! Stop by either of our branches and talk to us about your goals. We’ll help you review your finances, set up your savings goals, and explore your auto loan options. 

Call or visit your local Cotton Belt branch. We would love to help.