Buying a car may be your biggest purchase when compared to a home. The entire process of buying a car is quite extensive. It involves both finding your car and finding financing for your car. When you go car shopping, it is important to determine the amount that you can afford to spend before you buy the car.

While the bank may be willing to loan you a certain amount of money, you should determine the amount you can afford to spend each month and only borrow that amount.

Finding a Car Loan

When you are shopping for a car, it is just as important to consider the financing options as it is finding the new car. The lower the interest rate, the more you can save on the loan. Some car lots may offer financing through them.

However, you may be able to save on the interest rate by finding a loan through your bank. As you are choosing your car loan, it is important to understand several different aspects of loans. For example, you need to understand the type of interest rate as well as any fees or rules regarding the loan.

Variable Interest: When you are offered a variable interest rate, it means that the interest rate on the loan may adjust according to market conditions. Generally this means that the interest may go up if the prime rate goes up. Your car payment may increase when the interest rate goes up. It is important to be prepared for this possibility.

Fixed Interest: A fixed interest locks in the interest rate that you will have for the entire life of the loan. This will also set your monthly payment so that it does not change, which makes it easier to set up your budget and control it.

Fees: You should also consider the origination fees associated with the loans. If the interest rates are very close, you can save money by choosing the loan with the lower origination fee.

Rules: Each loan will have a different set of rules regarding early payments or additional payments. If possible find a loan that does not penalize you for making extra payments or for paying off the loans early.

Breaks on Interest Rates: Some banks or companies may offer a slightly lower interest rate if you set up an automatic transfer or payment for your loan. There may be rules such as having an account at the bank, but it is worth checking into.

Terms and Interest Rates

There are different aspects of your loan that will affect your monthly payment, and the amount that you pay in interest over the life of the loan. As you search for a car loan, you also need to decide on the term or the length of the loan.

A longer term means lower monthly payments, but it also means that you will pay more in interest over the life of the loan. While a shorter term means higher interest payments, you will end up paying less in interest. A lower monthly interest rate means you can lower your monthly payments and possibly shorten the life of your loan.

You can see a big difference in the amount that you pay in interest and monthly payments with the different interest rates.

Amount         Rate             Term            Payment       Total

$15,000	7%	36	$463.16	$1673.62
$15,000	7%	60	$297.02	$2821.06
$15,000	9%	36	$477.00	$2171.83
$15,000	9%	60	$311.80	$3675.97

Buying New vs. Used

When you are choosing a car, you may be trying to determine whether or not you should buy a new car or a used car. There are advantages and disadvantages to buying either new or used, and it is important to consider all of the options before you make a final decision. You may also want to take other factors into consideration when choosing your car such as fuel efficiency, the reason you need the car and the size of the car.

The value of the car does take the biggest hit during the first three years.

One of the biggest advantages of a new car is that you are getting a car straight from the factory. It is should be very reliable, and you should only need to do maintenance on the car for several years. The idea of having a reliable car without worrying about repairs can be very appealing, especially if you are on the road a lot or if you live in an area that is fairly isolated. However, the value of the car does take the biggest hit during the first three years.

You will lose money the minute you drive the car home. If you can afford to do this, then a new car may be a good option.

When you buy a used car, you are buying a product that will depreciate in value much more slowly. This option can save you money, and you will likely spend less on the car than you would if you bought a brand new model. The disadvantage of buying used is that you are getting an older car that may need more frequent repairs. However, car quality has improved and cars are lasting much longer and needing fewer repairs if properly maintained. You may want to put a little money into saving to cover any surprising repairs that need to be complete.

What About a Car Lease?

A car lease is another way to pay for your car. The monthly payments are usually lower than if you were purchasing the car. Generally, you will need to put money down on the lease, and then you will have the set payments for the length of the lease. This will make driving a new car more affordable.

There are drawbacks to leasing a car.

You will have to either buy out the lease at the end of the car or sign up for a new lease. This means that you may have a perpetual car payment to make. Additionally, you may face penalties if you go over your miles. Before you sign up for the lease carefully read the paperwork and determine if the benefits outweigh any penalties you may end up paying.

Determining How Much Can You Afford to Spend

Before you buy a car it is essential that you determine what you can afford to spend. Some people simply go car shopping and apply for the loan and then spend the amount that the bank or the dealership says that it will lend them. This often causes people to borrow more than they really can afford.

You should also take into account the additional gas, insurance and repair costs when it is time for you to buy a car

If you take the time to review your budget carefully to determine the amount that you can afford to pay. You do not want to overextend yourself and then have a difficult time paying your bills. You should also take into account the additional gas, insurance and repair costs when it is time for you to buy a car.

Another rule of thumb is to try to limit the term of the car loan to three years. This is because jobs change, and your priorities shift about every three years. It is better to buy something you can afford to pay off in three years, rather being stuck with a large car payment that you may struggle to make if you are laid off or decide to open your own business.

Another rule of thumb you may want to consider is limiting the amount you spend on all the vehicles that you own to half of your annual salary. This helps you keep the amount you spend in perspective to what you are buying. Many people mistakenly look at a car as an investment because it is such a large purchase. While it is often a necessity for people, it is not an asset because it depreciates in value over time.

You should try to limit your loss by limiting the amount of your resources that you wrap up in your car each month.

Planning for the Car and Maintenance

Before you buy the car, you will need to make arrangements for car insurance. Your car insurance will pay for damages and injuries that may happen during a car accident. The insurance is there to protect you and your other assets if you are in accident. Take the time to shop for the most affordable policy through a company that you can trust.

Regular car maintenance can save you money in repairs and will help you car last longer. You should include in your budget money for oil changes, as well as new tires for the car. You can put aside a portion of this every month so that you have the money available when you need it. If you have an older car, you may want to put additional money aside to help you pay for the occasional repairs that you need.

In addition to repairs and insurance, you will need to be prepared to pay for inspections and registration fees. The different regions in Australia handle the fees and registration, and so they may vary slightly depending on where you live. You can budget for this expense throughout the year by putting money aside each month to cover the fees.

Saving for Future Purchases

Many people look at a car payment as an expected part of life. However, you are paying extra money in interest and tying up a portion of your income each month to cover your car payments. With planning, you can eliminate car payments from your budget and pay in cash for your car.

If you opt to repair the car for a few years and save up cash for your next purchase, you can save a significant amount in interest on the car.

This gives you additional freedom to find the best car, and you may be able to negotiate a better deal when you pay in cash. If you set aside some money each month while you are paying off your car, you can begin to build up a sinking fund for your next car. After you have paid off your car, you can then contribute the car payment to your fund until you have the amount you want to spend on your next car.

If you opt to repair the car for a few years and save up cash for your next purchase, you can save a significant amount in interest on the car.

Another benefit is that you will not have a car payment hanging over your head if you were to get laid off or if you suddenly needed to tighten up your budget a great deal. Although driving an older car that may need occasional repairs may seem expensive when you are paying for the repair, if you look at the cost of the repairs versus what you would be paying in car payments throughout the year, you will often come out ahead by paying for repairs on a paid off car.