If you drool with envy every time a hot new sports car whizzes past you, consider this: just because some drivers can buy expensive cars doesn’t mean they can actually afford them.
Afford More by Finding the Best Price
Shopping around for the best price is still the best way of making the car of your dreams more affordable. USAA’s Car Buying Service provides a way to search for new and used vehicles in your area from the comfort of your home. Features include upfront, no hassle pricing, the True Car price comparison tool, user reviews and safety information. All the tools that you need to make an informed vehicle purchase decision are at your fingertips.
The safe way to buy a car is to analyze your budget before you ever set foot in the showroom. Here are some steps to help you buy smart:
1. Set a monthly loan limit. If you’ll finance your vehicle with an auto loan, you’ll need to decide how much you can comfortably pay each month.
Don’t even think about the price of the car. Start by tallying all of your other monthly expenses and comparing the total to your monthly net income (after-tax pay), to get an idea of how much money you have to spare.
Keep your total vehicle expenses less than 20 percent of your net household income. This is not just your monthly vehicle payment, but also all related costs such as gas, maintenance, etc. For example, if you and your spouse bring home $5,000 per month, you should be spending less than $1,000 a month on your cars.
Consider your current debt load. Even if your car expenses are less than 20 percent of your pay, they could still detract from your ability to pay off other debt such as credit card balances or student loans. To keep your debt under control, a common rule of thumb is to limit your total household debt payments—including mortgage or rent—to less than 36 percent of gross (pre-tax) income. So if you and your spouse make a combined $80,000 annually, you should pay less than $28,800 toward all debt each year.
2. Look beyond the sticker price. Your total vehicle-related expenses stem from lots of different sources, only one of which is the price tag on the window. Don’t forget:
Taxes and fees: State and local sales taxes, title and license fees, and other legitimate dealer charges could increase the total cost of your car by as much as 10 percent.
Interest: A low APR could make a big difference in how much you pay over the life of your loan. Get a pre-approved quote from your bank before you buy. USAA Bank is one source for fast, easy auto financing. Shop around and compare up-to-date incentive financing rates at the manufacturer’s websites.
Insurance: Don’t use your current insurance costs as the barometer—the new car will likely be different. You might need to add collision and comprehensive coverage if you didn’t have it before. Luxury and/or high-performance cars cost more to insure, as do vehicles that have lower safety ratings or a high frequency of theft. As you’re budgeting, get a quote from USAA Bank for the new car. You can also get an estimate on your insurance costs by test driving USAA’s Car Buying Service.
Fuel: If you’re on the fence between a fuel-sipper and a gas-guzzler, don’t dismiss the savings of a few extra MPGs—it can really add up over the years.
Maintenance and repair: Typically, high-end cars cost more to keep up. Some carmakers offer longer warranties or free scheduled maintenance programs that can save big bucks when break-downs occur.
Calculators like True Cost to OwnSM on consumer advocate site edmunds.com can help you see the whole picture. You can also explore USAA’s Car Buying Service and look for vehicles that are designated as USAA Preferred. These cars usually have lower insurance, gas and maintenance costs when compared to others in their class.
