Planning to buy your first car? Or worried about how to churn money to buy your next car? Pakistan’s economy is tough. Inflation, taxes, jacked up prices for vehicles, and varying fuel prices make it quite difficult to afford a car.
If you are planning to be a first-time car buyer, or planning on buying the next one for yourself or your family, you need to start budgeting today! It is not as difficult as it sounds. We have created a step by step plan to help you budget and buy your dream car. Follow this checklist and be the proud owner of the vehicle you’ve been dreaming of.
Do the Math:
This is perhaps the toughest of all steps, realizing how much you spend where. There might be a few surprises here and there, making you realize how much money you spend on purchases that you don’t need.
As a first step, find out what your take home salary is, and the expenses that you are paying for. Take out all the bills you’ve paid for in the past month to see where the money is being spent. If there are any other income streams such as your savings account, factor that in, in your income too.
If you are self-employed, evaluate the amount of money you are earning from the business and how much you are taking from it to pay your household expenses.
Decide On The Car First:
Are you a first-time car buyer or are you planning on buying your next car? A lot of your financing and budgeting decisions will be based on the make and model of the car you want to buy as your next one. Your budgeting and financing choice will also depend on what you want to do with your current car.
If you plan on selling your current car, make sure you have gotten its market valuation. Find out how much your car will go for in the market. This can be a great down payment option if you are opting for an auto loan.
Next, find out how much your next car is going to cost you to purchase. It will help you to evaluate the amount of funds you would need to buy your new car.
Don’t fret even if you are a first-time car buyer. Evaluate the amount of money it will cost you to purchase your dream car. Next, we will see how you can finance the purchase of your vehicle.
Evaluate Paying Options:
At one point, paying for a new car was easy as walking into the bank and getting an auto loan in a few quick minutes. It may not be as easy now. However, there are a few payment options you can choose from to purchase your next car.
If you intend to go through the auto financing route, you have tons of banks to pick from. Financing rate varies from 11% to 17% depending on the bank, the type of financing (Islamic vs. conventional), type of loan (i.e. fixed rate loans and variable loans). Auto financing or leasing is great when you do not want to or don’t have a lot of cash to pay off for buying your car. If your auto financing is from the same bank that you use regularly, you can also have auto payments scheduled from your account for hassle free payment of your instalments. You can use the calculator here to find out how much it can cost you today.
You can also choose to pay through cash if you have been saving after your budgeting exercise. Do not get tied down by continuing to save versus taking bank financing. Evaluate your opportunity cost first. With cash payments, the car is in your ownership. You don’t have to worry about the bank breathing down your neck for installment payments. Also, paying cash upfront is cheaper as it allows you to avoid bank charges and financing rates over and above the price of your next car.
Another, lesser used option is to exchange your current car to buy your next car. If the market rate for your current car is less than that of your new car, you can top that up with the savings you’ve been keeping aside for the purchase.
Pay For The Car:
Next, you would need to plan for amount of money you need. If you’ve done your math, you know what your income is minus your expenses. You’ve decided on your car and the budget you’re willing to spend on it, and you’re sure of your paying options as well.
Based on the payment option you have chosen, you would need to evaluate the amount of money you need for your down-payment or the funds needed to fully pay off for the new car.
If you are planning for auto financing, you can also try for balloon payments on your installments. It will help you to reduce your overall financing cost of owning your next car. Do remember, as a thumb rule, you should not go for an installment amount, more than 15% to 17% of your take home pay. Also, larger down payments mean lesser number or amounts of installments. Try not to miss any payments, that adds to your costs and it comes up on your credit history (Yes, State Bank keeps tabs on your credit history!).
How Much Is Your New Car Really Going to Cost You:
While you have budgeted the purchase of your first car or your next car, you must be sure of how much it is really going to cost you. From maintenance to fuel, and from insurance to taxation, ensure you have your budget aligned. Some of the key costs that you should plan for before buying your next car:
- Down payments (if you’re planning on auto financing)
- Dealership charges
- Registration charges
- Monthly payments (in case of auto financing again)
- Insurance charges
- Maintenance charges
- Parking (in case you have any charged parking outside your home or office)
Evaluate your budget again and then go for it!