Excited about buying your first car but finding it challenging to figure out how to go about it? Well, setting your budget first would be a good start. Before you start evaluating your options, you need to narrow them down based on what you can afford to spend. For most first-time car buyers, USD 5,000 to USD 10,000 is the standard price range. However, keep in mind that a lot of variables come into play while buying a car, such as associated costs and your financial stature. You should meticulously evaluate all the particulars before you decide on your budget.
What is a good price for a first car?
As the buyer, you are really the only one who can figure out what would be a good price for your first car. Every individual has their own purchasing ability, financial obligations, and preferences. On average, a new car costs USD 45,000 while a used one costs a little over USD 25,000. However, if you are buying a car for the first time, chances are that your budget would be smaller.
If you are looking for a pocket-friendly yet dependable first car, go for something within the range of USD 5000 and USD 10,000. While cars that cost more than USD 10,000 are generally too expensive for first-time buyers, the ones priced less than USD 5,000 may not be very reliable.
How much should a teenager pay for their first car?
Teenagers buying their first car are usually on a relatively tight budget and need to look for more affordable options. With that said, bear in mind that trading reliability or safety features for the sake of lower costs is never worth it. You would have to work out your budget carefully to find a good car within your affordability.
As mentioned earlier, a car priced between USD 5,000 and USD 10,000 should be okay for a first-time buyer. For teenagers, this should be rather close to USD 5,000. You could get a good used car at such a price. This would be particularly a good idea while buying a car as a teenager when you are looking for an affordable four-wheeler.
How to pick a budget for your first car?
Working out a feasible budget for your first car isn’t easy. Prioritizing your long-term finances, you would consider several aspects. Particularly, accidental expenses might trigger financial issues that might eventually turn into nasty ordeals. Check out a few aspects to ease up your budgeting.
1. Consider your savings
Sticking to a foolproof savings plan would help you arrange a part of the amount. Simply consider how much you have saved up so far and how much you can add to it. This should give you a fairly clear idea of your budget if you plan to pay without taking a car loan. However, a meticulous approach on your end ensures that you won’t be overlooking additional expenses.
2. Pay a down payment of at least 20%
In case you cannot afford to pay up the whole cost immediately and need a loan, try to pay up at least 20% as the down payment. This should significantly reduce your monthly payments, and in turn, the interest on them. You would also be more likely to qualify for the loan, as the size of the monthly installments is a major determining factor behind it.
3. Spend only 20% of your take-home pay at most
If you are going to take a loan, your monthly income is the biggest factor to consider. You shouldn’t end up defaulting because your regular expenses force it hard for you to repay the loan. Ideally, the monthly installments should not exceed 20% of your take-home pay. In case you have to spend a lot on rent and other expenses, you might want to lower the limit to 15% of your take-home pay. Apart from keeping aside some money to cover various expenses, also remember to save some.
4. Loan period shouldn’t exceed 4 years
Many banks allow borrowers to repay loans over an extended period as long as eight years. However, don’t prolong your obligations by choosing a tenure exceeding four years. Firstly, you would have to repay the loan at a much higher interest rate. Secondly, you may not even use the car for eight years. If the car stops running or you sell it before the loan tenure ends and buy a new car, you would have to finance two cars simultaneously.
5. Try out the budget
It would be a good idea to first try out the budget before you actually buy the car. Once you have worked out how much your monthly payments would be, start depositing the amount in a separate savings account every month. If you can, also deposit the 20% down payment. Now keep making the monthly deposits and stick to this budget for a few months. In case financial issues don’t bother you, simply move ahead and make your purchase.
Things to take care of while buying your first car
When buying your first car, the lack of experience can often make it hard to see the bigger picture and take all relevant factors into consideration. These guidelines should ease up your decision-making before you purchase.
- Safety: This is an extremely important factor that individuals often overlook while looking for a budget-friendly car. Shortlist cars that strictly adhere to safety standards. Especially if you are a parent buying your teenage child their first car, try to choose the safest vehicle possible.
- Mileage: While considering the costs, do not make the mistake of overlooking a car’s fuel efficiency. The better the fuel economy rating of a car, the more money you would save on gas. It is worth spending a little more to get a car with greater fuel efficiency, as it would save you more money down the road.
- Reliability: You wouldn’t want to buy a car that breaks down often. This is especially an important thing to consider while buying an old car. Even if you get a car at a much lower price, it wouldn’t be a good purchase if you have to repair it often. You would habitually drain out money, face major inconveniences, and may not even be using the car for long before it’s completely out of service.
- Insurance: Another major expense to take into account while buying any new car is its insurance. A competent insurance agent can help you find the ideal coverage. From time to time, established insurers offer special discounts. Capitalizing on these opportunities, you would be shelling out a lower cost on insurance.
Apart from these, a number of other important factors like size, visibility, and ease of driving require consideration too while buying your first car.
Your ideal budget for buying your first car may not be the same as that of another first-time car buyer. Being strategic and calculative, find out your spending power and decide accordingly. Carefully evaluate all aspects to work out a viable budget, check out the cars in the price range, and pick the most suitable one.