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March 20, 2017

3 Insightful Tips on Financing an Auto Purchase

Buying a car is probably the biggest expense most people will ever make aside from buying a house. A car is an important part of modern living as it gives you the mobility to go around at your convenience without being tethered to the schedules of the public transport system. However, the costs of car ownership go beyond the actual retail price listed for the car. Hence, most people dread the idea of buying a car because it sneaky ability to create gaping holes in your pocket.

Many people often choose to lease a car instead of outright ownership but the cost of leasing a car are not significantly lesser than the costs of buying a car through financing. This piece provides three insights on how to navigate the complex world of auto financing.

Decide on how much of a loan you can afford

You should avoid putting yourself in a position where you start regretting buying a car because of the strain that the auto loan repayments have on your finances. Buying a car you can't afford inevitably gets you stuck with unaffordable auto loan payments. The worst part is that selling the car in the hopes of divesting the deal will most likely result in bigger losses because the car lost a big part of value as soon as you drove it off the lot.

Ideally, your monthly car expenses should not exceed 20% of your disposable income if you want your finances to be healthy. If your monthly disposable income is $2000, the payments on your car should ideally not exceed $400 each month. The $400 should cover auto loan payments, gas, and auto insurance.

Think twice before taking dealer/manufacturer financing

Dealerships are in the business of booking profits and they'll suck every dime of potential profit of out you by selling you all sorts of add-on products/services imaginable. They'll promise to make the car purchase easy, smooth, and stress free for you. Hence, they'll offer you dealership or manufacturing financing among other things.

However, obtaining financing to purchase through the dealership will limit your ability to comparison shop for financing and you are not likely to get the best deal. Tell the dealership that you intend to finance the purchase in cash – you don't need to show up to close the deal with bags of money. However, refusing the dealership's financing offer will give you an opportunity shop for better deals on auto loans from your bank or other lenders.

Make an educated decision on auto insurance

Auto insurance is one of the key expenses that you'll need to manage in the course of your ownership of the car. Auto insurance refers to different policies that provide coverage on to reduce/limit risk in the event of unforeseen events involving the car. You'll find different kinds of auto insurance policies offering liability coverage, bodily injury liability, property damage liability, personal injury protection, collision, and comprehensive damage among others.

You can't afford not to have auto insurance and your car could be impounded in some states if you are caught driving without auto insurance. Some folks often choose the minimum coverage possible in other to satisfy legal requirements without paying much money in insurance premiums. There's no one-size-fits-all solution to auto insurance but a general idea is that you should have an auto insurance policy that that covers you with an amount equal to the total value of your assets.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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Item Reviewed: 3 Insightful Tips on Financing an Auto Purchase Rating: 5 Reviewed By: EconMatters