DavidPurchasing a new vehicle is a major milestone for any consumer. Depending on the model, today’s vehicles have the latest technology and safety equipment for exciting daily rides. Because of cost, understand the top 8 financial signs that you’re ready to purchase a new vehicle right now.
1. Solid Credit Score
If you have a credit score of 700 or better, you have the financial prowess to purchase a vehicle. Essentially, this number reflects your ability to manage and pay back debt. A score lower than 700 may require a co-signer, so striving for a high credit score is a good indicator of your purchasing power.
2. Current Vehicle Costs
You may have a car that’s on its last few thousand miles. Indeed, each breakdown requires more funds to get it back on the road. In this case, chronic repairs on an older car can make it cost-effective to simply buy a new vehicle with no repair issues.
3. Down Payment Savings
You’re ready to buy a new vehicle if you have a solid down payment available to be used. For example, if you’re shopping for a truck, ideally, you would offer a 20-percent down payment on a new vehicle so that your monthly payments are low.
4. Stable Income
Unless you purchase a new vehicle outright, there will always be a loan tied to your investment. Because car loans can range from 3 to 7 years long, you need a stable income to qualify for any financing. Wait until you’ve been with an employer for a few years before committing to an auto loan.
5. Emergency Savings Funded
If you have a savings account funded with at least 3 to 6 months of income, you’re financially ready for a new car. Any emergencies, such as medical issues or job loss, can be covered with this account.
6. Loan Terms Knowledge
You’re financially ready for a new car when you understand loan terms. Consider the interest rate and loan term, for example. In total, your monthly costs for the car shouldn’t be higher than 20 percent of your income, states ABC News.
7. Pre-Approved Loan Secured
Ideally, apply for a car loan before meeting with a dealer. A pre-approved loan gives you a budgeting goal and security that you can afford a vehicle. It also provides negotiating room on interest rates and other loan terms.
8. New- Versus Used-Car Considerations
New cars will always be more expensive than used vehicles, reports Equifax. If you consider a used vehicle, however, the interest rates will be higher than a new purchase. Paying more each month towards the principal on a new car rather than interest is financially beneficial as you pay down the debt faster and improve your credit score.
From researching a model to signing the loan documents, purchasing a new vehicle takes some commitment before even sitting behind the wheel. Analyze your budget, cut wasteful spending, and set aside funds for a solid down payment. In the end, you’ll have a dream car with a reasonable payment to enjoy over the years.