Budgeting for your dream car

GRAND RAPIDS, Mich. (WOOD) - If you’re thinking about buying a vehicle this year, it’s time to start planning, researching, and budgeting.  An automobile purchase is typically the second most expensive purchase that people make, so it's important to avoid those spur-of-the-moment decisions and make a wise choice.

Tip 1: Determine your budget
To keep your auto costs in check, plan to spend no more than 20% of your monthly household income on car-related costs.  Remember that the 20% includes all costs associated with your car, such as repairs, maintenance, auto insurance and your car payment. 

Tip 2: Don't assume a small budget equals a used car
Used cars are in shorter supply than new cars, which makes them more expensive than similar cars in the past and harder to get a good deal. If you plan to spend at least $14,000, then assess your options for both new and used cars, and then make your choice. 

Tip 3: Know your ownership costs
To narrow it down your choice, look at each car's ownership costs on independent car-pricing websites. You'll probably find a wide range of actual ownership costs, even with cars that are priced similarly. Keep in mind that these costs are averages and that your actual costs may vary dramatically, especially for car insurance and fuel. For a more accurate calculation, run your own calculations on car insurance by getting quotes based in your area and driving record.

Tip 4: Find the best interest rate before visiting a dealer
Those ads for zero percent and low-interest financing are designed to woo you into a car dealership to commit to buying before you've thoroughly given thought to the decision. The reality is that most car buyers don't qualify for the cut-rate finance deals that automakers offer.  Even if you have good credit, don't assume you'll get the best finance deal. 

Tip 5: Know all the rebates and discounts that apply to you
Automakers often tout cash-back rebates in advertising that apply to all buyers, but frequently there are "personal rebates" that only some buyers qualify for that are not as easy to spot.  Examples would be savings offered to students or recent grads, current or former military personnel, members of certain credit unions, or other member-based stores. Make sure you always get all the details and read the fine print before you commit.

Tip 6: Determine the invoice price
Independent car-pricing websites note every car's invoice price for new cars or wholesale price for used cars. While this information isn't always 100% accurate, the figures listed on these sites are very close and are a great tool. As you negotiate the sale price on your new car, start at the invoice or wholesale price and negotiate upward to ensure the best deal, while still giving the dealer some profit to cover his overhead and expenses. 

Tip 7: Forget about trading in your car
Even if you plan to trade in your car instead of selling it privately, forget about it as part of the deal for the moment. It's easier to get the best price for each if you negotiate the sale price of your new car and the trade-in value of your old car separately.

Tip 8: Be thorough in your test drive
It's likely you will own your next car for many years, and that means logging a lot of time in the driver's seat. Make sure you'll be comfortable and happy with your car for the long term by ensuring your test drive takes you through all the typical driving situations, and don't hesitate to ask for more time if you need it.

Tip 9: Check the car's history even if it's new
Check the reliability ratings for the car you're buying so you're aware if the model has a history of problems. Then, once you've settled on the exact car, get its vehicle identification number, or VIN, and run a vehicle history report, even if it's new.

Tip 10: Say 'no' to extras
If you are buying a car at a dealership, the salesman will bring you to the finance and insurance department to finalize the sale after you've agreed to a price. It's here where you are likely to be offered a whole host of extras, ranging from an extended warranty to car accessories and everything in between. Even though it may sound like this adds only a few extra dollars, make sure you do your research before you finalize your deal as some of these extras might not fit your budget, can be found at a lower price elsewhere, or simply aren’t necessary.  

For help with your next automobile purchase contact one of the Option 1 Credit Union branches listed below or call 1-800-323-2129.

Grand Rapids Locations:
630 32nd Street SE
1240 Chicago Drive
2355 Health Drive SW
4211 Plainfield Avenue NE
6750 Kalamazoo
3286 Alpine Avenue NW