When you imagine buying a new car, you probably picture yourself cruising around, windows down, music blaring, enjoying the freedom that comes with owning your own set of wheels. What you might not imagine, though, is staring at your bank account and wondering where all your hard-earned money went. Truthfully, owning a car can be expensive, and if you don’t do your research and create a realistic budget, you won’t enjoy your vehicle as much as you hoped.
Long term loans
Car manufacturers are worried that Canadians are buying more car than they can afford. The introduction of longer term car loans (loans spread over six years or more) has seen more people carrying larger amounts of debt than they can handle.
To compound this problem, new cars depreciate quickly, losing a significant amount of their value in the first two years. Coupled with long-term car loans, this means that many drivers end up in a negative equity situation – meaning cars are losing their value faster than owners can pay down their loan. As a result, many people end up owing more money than their car is worth.
Owning a car doesn’t have to bust your budget. Buying a used car can help you avoid the worst effects of depreciation. To hit the sweet spot for retaining value in a car, look for a vehicle that is four years old and sell it before it’s 10 years old. Otherwise, if you’re buying a brand new car, plan to keep it for at least 10 years to compensate for depreciation.
If you’re committed to buying new, create and stick to a realistic budget. Rather than deciding how much you can afford each month, decide how much you want to pay overall, and find a car that fits in your budget with a shorter loan term. If you only focus on monthly payments, you’ll fall into the trap mentioned above – making payments on a car that is already worth less than what you owe.
Car insurance, maintenance, and emergency repairs
Don’t just budget for the monthly payments and forget about the rest of the expenses that come along with car ownership, or you’ll be scrambling to find money to pay for car insurance, regular maintenance, parking (if you need it) and emergency repairs. There are lots of ways you can save money in these areas. For example, you can save on your car insurance by shopping around for the lowest price on an annual basis and committing to a higher deductible for lower monthly payments.
You’ll also want to keep up with regular maintenance to retain the value in your vehicle. Skipping out on oil changes and other small fixes might save you money in the short-term, but your car needs this regular TLC to prevent bigger problems down the road. Remember, you’ll want to be in this car for at least 10 years, so commit to giving it the proper care to extend it’s life. You can utilize Halfords 50% Off Select Items & Free Delivery discount codes and vouchers to save money on keeping your car on the right path and roadworthy all year round.
Knowing the truth about depreciation and the risk associated with longer term car loans will help you make smart decisions when purchasing your next car. With proper planning and a realistic budget, owning a new car doesn’t need to kill your finances.