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So you’ve settled on a new car, but how do you manage to make that car payment fit into your family budget? You’ve probably already crunched the numbers to figure out what you can afford, but you may still be wanting to save a bit more each month and try to make that payment a bit less. There are a few handy ways you can budget for a car payment, and we are happy to share those with you.
How To Budget for a Car Payment
1. Buy used instead of new
Yes, this may not be your ideal, but there are tons of great pre-owned options these days that even include a great warranty. Since you already know that practically the moment you drive that new car off the lot it goes down in value, a used car that is in excellent condition shouldn’t be a bad choice.
There are options at most new car dealerships for used cars. Many of these cars are what they call “program cars” that have been used within the company or dealership for limited miles. They often come with the same or similar warranties, and are less than two years old. These cars can be a wonderful new car option that will greatly reduce your monthly car payment.
2. Trade in a vehicle
You most likely already know all about trading in an older vehicle to lower your loan amount, but you might be hesitant thinking it won’t give you the amount of money off that you feel it is worth. The thing is, a lot of car dealerships will give you special trade-in offers around certain times of they year.
Watch for promotions from late Fall through early Spring. At the end of the year car dealerships are trying to get rid of the last year model to bring in the latest. Doing so means they will often offer great deals on trade in options to get more customers in the door. You’ll often see the same kind of offers in the first 2-3 months of the year as tax-refunds come in and sales happen.
A car dealership is often willing to give a set amount toward trade-in even if your car is not really worth that much just to get you to buy that new car and get old models off their showroom floor. Take advantage of these offers and find your loan amount lower, and your car payment easier to manage.
3. Pay sales tax out of pocket
If your state requires you to pay sales tax on the purchase of a new car, it can be advantageous for you to actually make that payment separate and out of pocket rather than figuring into your monthly payment. Some dealerships offer to pay that amount for you and figure the price into your loan. While it is great in the short-term, in the long-term you are paying more due to interest and fees. Avoid extra penalties and create a lower car payment by saving up to pay this sales tax amount out of pocket instead.
f your state requires you to pay sales tax on the purchase of a new car, it can be advantageous for you to actually make that payment separate and out of pocket rather than figuring into your monthly payment. Some dealerships offer to pay that amount for you and figure the price into your loan. While it is great in the short-term, in the long-term you are paying more due to interest and fees. Avoid extra penalties and create a lower car payment by saving up to pay this sales tax amount out of pocket instead.
4. Get a private loan through your bank
Most individuals simply go with the loan options provided by the car dealership, but it can be worthwhile to check with your local bank and see if they have a better option for you. We use Capital One for many of our banking needs, and you can get $20 for opening an account with this link.
While this isn’t always the case, a bank where you have a long-standing good relationship will often have a lower interest rate than what is offered by the corporate banks associated with your car dealership. If you already have a bank account, savings account, or other loans in good standing with your bank you may be able to bundle things to create an even lower interest rate which results in a lower car payment.
5. Lease instead of buy
This is one pretty controversial suggestion when you are trying to negotiate a lower car payment. However, it will almost always give you the car payment you can afford. The thing is, leasing a car means you will have a balloon payment later down the road in order to purchase the vehicle outright.
This option works best for someone who believes their financial status will improve over the course of a few years, and allow for them to make that balloon payment easily. It also works well for someone who fully intends to get a different car sooner rather than later. Just make sure to read all of the details fully to understand that your lower car payment now may not be the best plan for you in the future.
When you are trying to improve your finances, a lower car payment is a huge part of that overall budgetary goal. A few simple considerations when you are shopping for a new car can make that much easier to manage. Having used all of these in the past, each one has its own individual benefit for a situation. Weigh them before signing the dotted line to make sure they are going to be best for you and your situation.