Know your budget

Before you step into a dealership, it's vital to establish a clear budget for your vehicle purchase. This budget should incorporate not only the vehicle's cost but also registration fees, insurance, initial taxes, fuel, and maintenance expenses. Knowing your budget can help you avoid financial mistakes and buyer’s remorse.

When purchasing a vehicle, budgeting is crucial. If you do not plan ahead you can end up with a high payment which could result in you defaulting on the loan and damaging your credit.  Nerdwallet recommends spending less than 10% of your monthly income on a car payment and less than 20% overall on vehicle expenses (gas, insurance, maintenance.). For example, if you make $2500 per month you should aim for a payment of $250/mo or less. The average car payment in Ohio is $335 for used vehicles and $535 for new vehicles.

It is recommended you compile your monthly income and expenses before planning your budget. Use our Free Auto Loan Calculator to estimate your payments based on term, interest, and money down.

Plan ahead

The monthly and upfront cost of your vehicle may be the most pressing factors but they are not all the matters. The cost of your vehicle is also determined by the length of the loan term. The longer the loan is financed the more money you will pay in interest. Auto loans usually range from 36 to 72 months with the most common term being 60 months (5 years). $10,000 financed for 5 years should come to a payment of about $200.

Another factor to consider is the condition of the vehicle when buying pre-owned. How many miles does it have? Any existing problems? How long will it last? What might I spend on repairs? It is important to do your research when purchasing a used vehicle. Another thing to look out for is the vehicle’s warranty. All new cars and most certified pre-owned vehicles have some sort of warranty protecting various parts of the vehicle. If there is a mechanical malfunction or defect that is covered under your warranty, you will be able to get it repaired for reduced or no cost, depending on the terms of your warranty.

Choosing a shorter loan term, if your financial situation permits, can be advantageous. Not only will the interest rates be lower, but you will also pay less overall for your vehicle. Plus, you’ll be on the path to paying it off sooner. If the monthly payments for a shorter-term loan seem unaffordable, consider increasing your down payment or waiting until you can afford the payments.

Should I Buy New or Used?

Should you buy new or used? Most people jump at the idea of a car fresh of the line with that new car smell, but it isn’t always the best decision financially. While people who purchase new cars can enjoy lower interest rates and special incentives there is a reason it is recommended to avoid new cars in most situations. The problem with new vehicles is depreciation, once a car gets its first owner it will see a large drop in value, and depending on the amount put down or vehicle traded in this can give you negative equity in your loan. However. For the right terms and price, a new car can be a good option, especially if you plan on keeping it for a very long time.

Used and certified pre-owned vehicles may have some wear, no warranty, and often come with higher interest rates but they will have a much better chance of retaining their value when being sold to a second or third owner than it would when going from new to pre-owned. Most financial advisors would recommend finding a used vehicle with low miles rather than a brand-new vehicle.