The process of buying a car can happen so swiftly that we’re not actually sure of what’s just happened as we stand there smiling for a photo next to a car with a big red bow. It doesn’t have to be a long and complicated process. But it still requires some serious thought and considerations before any details are given or papers are signed.
There are a few important things you need to know before you put down a deposit on a car.
First of all, you need a deposit
The answer to the question of whether you need to put down a deposit or not is: yes. There are so many advantages to putting down a deposit and, in some cases, they are required when taking out a car loan. Laying down a deposit can reduce the interest rate of your car’s finance as it will lower your monthly installments, therefore, resulting in less money being borrowed for the loan in total.
If you have the option of placing a deposit at the beginning of financing or coughing up for a balloon payment at the end of the contract, rather go for the deposit. Start saving for a car as soon as you have any interest in buying one. Then, when the time comes to choose a car and start financing it, you’ll be able to cut out a chunk of the cost from the start. And that will make your car affordable every month.
If you use a car retail value calculator, you will get a good idea of how much you’ll actually be spending every month after your deposit amount. And the only way you’ll be able to get that figure down is by saving a little bit longer for a larger deposit or by rethinking your choice of car.
Be 100% sure about the car
Before you put down a deposit, you need to be 100% sure of the car you want. You need to be sure of the price, make, model, colour, transmission, fuel-type, accessories, history (if it’s a used or pre-owned car), service plan and insurance cost.
All these aspects will affect how much the car costs and what the added monthly expenses will be. Car insurance is still a fixed expense that will likely be added to your total monthly repayment fee, but fuel will vary every month. If your car has a diesel engine, it will be more expensive initially but you’ll pay less on fuel and they tend to be more fuel-efficient and, therefore, economic. However, diesel engines are also expensive to service and repair in the event something goes wrong.
You need to consider all these little details that will have an effect on the price of the car beyond what’s included in the initial financing. You need to be 100% sure.
Think of the car’s future
Once you know how much you’re paying for a car, it’s very hard to think that you’ll have to sell it for a lot less when that time comes. But that’s the sad truth about cars. The minute they drive off the showroom floor, they start depreciating in value.
This means that before you choose and pay for a car, you need to know what your intentions are for the car’s future (when you’re done owning it, that is). Is it an in-demand model and colour that will stand up to its book-value in three years time when you want to sell it? Are you going to be able to afford the upkeep and servicing the vehicle requires in order for it to be a certified secondhand sell one day? You always need to keep the future in mind.
Create and stick to a budget
On the topic of financing and the price of cars, before you even start browsing, you have to have a budget in place. This will give you a better idea of what you can realistically afford without sending yourself into a world of debt and a fixed contract of “I can’t, I’m broke” months.
Create your budget, factor in monthly repayments, interest, insurance, car tracking system (if you plan on having one) and fuel. You’re not going to like the total, but you need to make sure it still allows you to pay off any other debt you may have and cover your debit orders. Also, the budget for your car needs to fit your budget for everything else if you want to still be able to have your weekly “treat yourself” coffee.
You may choose to have a short-term contract of paying off your car in larger monthly installments instead of dragging it out. In which case, you would likely live rather simply and be able to “just afford” things. And the reason why you may choose to pay off your car this way is that you’ll end up paying less for it than you would over a longer contract term. Because interest is a budget-killer.
Set a budget that you are happy and comfortable with and just be sure to stick with it.