Purchasing a car is often the 2nd most expensive purchase that a person will make in their lifetime, behind purchasing a home. So it stands to reason that you will want to get the most value possible out of that car payment. There are some financial rules that you can follow to get the most value out of the money that you are spending for your car payment.
Buy Used
The highest rate of depreciation for a car occurs when a brand new car is purchased and driven off of the lot, typically around 20% of the value of the car In order to avoid this immediate and dramatic drop in the value of your vehicle, you may want to consider purchasing a certified used car from the auto dealer. These cars are generally lease returns from people that trade in their cars every couple of years and are inspected for major defects before the cars are resold by the dealer. These vehicles are typically under warranty for the beginning of the payment turn and can be a great value for individuals that are not concerned about the car that they are driving being a status symbol.
Keep The Car As Long As Possible
The cars built today are built to last for much longer than their predecessors. With regular maintenance and inspections, a car purchased today could last for 10 years or more with minimal repairs. As most car payment terms are for 48 month intervals, a person can be free of a car payment and still have a great car to drive for 6 years before they would need to look for a replacement. Training yourself to choose vehicles that you intend to keep for a long period of time can save you tens of thousands of dollars over your lifetime.
Limit Car Payments To 10% Of Income
Although cars are an expensive purchase, nearly everyone is able to find a car that they can afford if they limit the amount of the monthly car payment to 10% of their take home pay. If the car that you are looking at will require a payment of more than 10% of your income, you should consider other options, such as an older model vehicle, a smaller vehicle, or a vehicle from a different manufacturer. This allows you to have more of your pay available for other needs and reduces the chance that a hiccup in your finances will result in the vehicle being repossessed.
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