Before you head out to purchase a vehicle, it is important that you determine exactly what you can afford.
When you start to negotiate during the car purchasing process with either a private party or a dealer you will need to be prepared to handle the high-pressure sales tactics that some dealers employ. The best defense for this is to determine what you can afford before you head out the door to purchase the vehicle. The best line of defense in the automotive sales business is to have done your homework, so you can take a firm footing and stand your ground during negotiations.
When you take into consideration that buying a new or used vehicle is the second largest purchase that most consumers will make in their lifetime you need to know exactly what your budget can support and be prepared to stick with it. You will need to ask yourself some basic questions:
What total purchase price can I afford?
What amount of monthly payment can I afford?
How much will I be required to put down?
By doing your homework ahead of time and preparing yourself with the knowledge and facts, the shopping experience will be much easier and hopefully enjoyable. Once your budget has been set now is a great time to figure out the total cost of the vehicle that you are looking to buy. To get the whole picture of the total cost is too take a large picture view of all the fees. Not only will you need to pay for the vehicle, but you also need to factor in all the other fees that can add up surprisingly quickly, warranties, title, dealer fees, financing fees, and taxes can add thousands to the original purchase price.
To be completely honest, most salesman and dealers would love to be able to sell you the most expensive vehicle you can afford. Why? Their commission. A salesman is paid on commission, usually meaning they get a percentage of the profit that is made on the vehicle that they sell. The higher priced vehicle generally means higher profit.
So how do you determine what is the best price range for you? A guideline to follow to figure out this important number is to consider that your vehicles monthly payment should never exceed 20% of your NET monthly income. To achieve this number a simple calculation is needed. First, take your monthly net pay and deduct all your living expenses. The remaining total is the amount of money that could be used toward a vehicle payment. Once this calculation has been completed you can now quickly estimate what your monthly payment should be.
By knowing the monthly payment that you can afford you will now be able to confidently shop vehicles that are only in the appropriate price ranges, and not have the salesman talk you into that beautiful red convertible you saw when you drove in.
As the salesman starts quoting your payments you will be alerted if they might be adding in any hidden costs. One thing that can be quickly overlooked as mentioned earlier is the sales tax. Guarantee that you won’t have any unpleasant surprises by making sure that this figure is added in all calculations. Sales tax is calculated very quickly and easily. To determine how much sales tax, you will need to pay, you need to multiply the total cost of the vehicle by your state’s sales tax. For example, if you purchased a vehicle that had a total cost of $22,000 and the states sales tax rate is 6.3%, the total you would end up paying is $23,386.
Another thing to ask the while purchasing your vehicle is what the “dealer fee” is for the dealer that you are negotiating with. This fee can range a lot from dealer to dealer and sometimes they will take advantage of this to sometimes “pad” the price for extra profit. During the process of getting a price quote, ensure that you ask and know how much, and what this fee is.
Before heading out another great idea is to contact your local bank, credit union, or other financial institution to obtain a quote based on the vehicles MSRP (Manufacturer’s Suggested Retail Price). Shopping for the best interest rate takes time, but if done right can save you thousands of dollars over the life of the loan. If the quoted payment is within your budget, you will know if the payment is something you can afford or if you need to get the salesman to “sharpen” their pencil and give you a better deal.
In summary here is a quick list of the major fees to consider when calculating the total cost of the vehicle:
Keep reading through our vehicle buyers guide to learn more about the vehicle purchasing process and ensure that you are reading to get the best deal during your next vehicle purchase.