Introducing the Vehicle Buying Tips Series - Part 1, Figuring Out Your Budget

Educational Series:  Tips for Buying a New Vehicle

Part 1 – Figuring Out Your Budget

The SVG Motors Auto Group family of dealerships is committed to providing Superior Value on every vehicle purchase. Value means more than a good price, though. Value means you get true, tangible benefits from our Superior Value Guarantee such as 3 years of free oil changes, one year of free paintless dent removal, and more. Bringing our customers value also means providing them with facts and sharing our automotive knowledge. We work hard to educate you so that even if you don’t buy your vehicle from an SVG dealership, you’ll have received an insider’s view on how the automotive world works so that you know how to negotiate a fair deal when buying your next vehicle.

Of course we certainly do want you to be our customer, so we invite you to check out any one of our six locations when you’re shopping for your next vehicle. Since a new car, truck, or van purchase is a major investment for most people, we’ve put together a list of some of the best tips you can use when it’s time for a new vehicle to ensure you’re getting the best value. This series of tips will be presented over the next several weeks, so be sure to check back often for more Vehicle Buying Tips.

When shopping for a vehicle, it’s important to know what you’re willing to spend before you shop. What you are willing to spend should be two numbers – the maximum total amount you’re willing to pay for a vehicle and the maximum amount you’re willing to spend on a monthly payment.

 

Keep in mind that no matter what your maximum ends up being, there are fees and costs that are typically not included in the dealer’s advertised price. They include tax, title, license, registration, document fees and more. These costs will increase your purchase price and as a result, your monthly payment if you’re choosing to finance.

 

Another important factor to remember when planning your purchase is to consider your credit rating. If your credit history is not good, you will pay more for a vehicle if you’re financing it. There really is no way around that unless you have a co-signer with a good credit score.

 

Another less-obvious thing that can affect the amount of your monthly payment is how much cash you have on hand to supply as a down payment. If you don’t have any cash down, you may pay a higher interest rate than someone who has several thousand dollars to use as a down payment. Keep in mind that dealerships often advertise monthly payment rates for new vehicles which sound too good to be true. It’s not that these payments are too good to be true – it’s that the calculations have been made based on a buyer putting between 20% down on their new vehicle and having good credit, which will of course reduce their monthly payment since they’re not financing as much.

 

How to figure out what you can afford

1.)  Write down your monthly net pay. This is the amount you actually get to keep from your check after paying taxes, insurance or any other deductions taken from your gross salary. For this example, let’s use $3000.

2.)  Write down each expense you have per month that is not vehicle related (mortgage or rent, utilities, home owner’s insurance, entertainment such as cable or Netflix, groceries, credit card debts, clothing, etc. Add these expenses together. Let’s say your total equals $1300. (*Hint – if you use your debit card to make purchases, look through your last 3 to 4 months of statements to get a really accurate snapshot of what you typically spend on non-vehicle related costs.)

3.)  Write down your current vehicle related expenses. This will include your payment (if you have one), your insurance cost (if you pay every 6 months, divide your 6 month premium by 6), how much you spend in gas each month, and any current maintenance costs such as oil changes (most people have their oil changed every 3-6 months, so keep that in mind.) For the purpose of our example, let’s say between your car payment, gas and other vehicle-related costs, you’re spending $550 a month.

4.)  Add your monthly expenses for both vehicle and non-vehicle costs together. In our example, that would be $1850.

5.)  Next step is to deduct your monthly expenses  from your monthly income. Our example would be $3000 (income) - $1850 (expenses) = $1150.

6.)  With $1150 left after covering your expenses, it’s time to figure out how much of your discretionary $1150 you can use toward a new vehicle

a.    (This example applies only if you’re not going to trade in your current vehicle, but instead you plan to add another vehicle to your household plus keep the one you currently have). You may be looking at your discretionary income and thinking “fantastic, I can buy just about any car I want with this much left over!” Hold on there! It’s never a good idea to stretch your budget to its limits. With $1150 left over per month, that means you have $287.50 a week. Is this really enough per week for incidentals? What if your television dies and you want to buy a new one? Televisions average around $500 each, so that would wipe out nearly two weeks of your discretionary income; if you were relying on this income to make your car payment you’ll have to make a choice between replacing your TV or making your car payment. Yikes!


     A more realistic approach would be to take your weekly discretionary income amount of $287.50 and dedicate just one week of it toward your new car purchase. Yes, you’re not going to get much for $287.50 a month unless you’re willing to lease a car, but just think how much more comfortable you’ll be if you know that you still have $862 a month left over for incidentals. So what can you get for $287.50 a month? Well, you’ll have to take some of that and use it toward the vehicle’s insurance. Let’s say your insurance cost is $70 per month. That leaves you with $217.50 per month for gas, oil changes and your monthly payment. Realistically, even with a low-cost lease such as the 2019 Chevy Blazer lease deal SVG Chevrolet is currently offering at $175 a month, that would leave you with $42.50 a month for gas. Is that really enough? If $42.50 a month won’t cover your gas costs, consider a different model of vehicle. For example, well-qualified lessees can get a brand new 2019 Buick Encore Preferred from SVG Chevrolet Buick GMC for just $75 per month during the month of May, 2019. This would allow you to have a great, brand-new vehicle that’s well within your budget. Keep in mind though that not everyone will qualify for this pricing; being able to lease the Buick for that price will depend on if you have another vehicle currently leased, having a credit rating above 700, having $2900 in cash to use as a down payment, and being willing to only drive the vehicle 10,000 miles per year for two years. If you can meet these criteria, then you’re fully capable of adding another vehicle to your household for an extremely affordable amount!

b.    But what if you don’t want to lease? Well the options a little bit more limited. Assuming all of the numbers above are the same, you’ll have to look for a pre-owned vehicle. A nice, dependable vehicle can be purchased from SVG using the numbers above. A good candidate for this scenario would be this 2016 Spark 1LT for just $9600. If you put $960 down on the Spark and have a loan term of 60 months, your payment would be approximately $160 a month (again, assuming your credit score is 700 or above). Some lending institutions will allow you to extend the term of the loan beyond 60 months, which will result in you having a lower monthly payment, but you’ll be paying more in interest and obviously taking a longer time to pay the vehicle off.

c.     (This next example applies only if you plan to trade in your current vehicle and replace it with a new one). Write down the amount that you’re currently spending on your vehicle (remember to include payment, insurance, gas, yearly registration costs, etc.). In our examples above, we estimated that we spend $550 a month currently on our vehicle and its related costs. Now, since you’ll be trading the vehicle in, you can add that $550 a month to your discretionary income of $1150 per month for a total of $1700. As demonstrated in the example above, it’s safest to only dedicate one week of your discretionary income to a vehicle and its related costs. Using our example numbers, you could spend $425 a month on a new vehicle (which is your discretionary income amount divided by 4). For that price you could get this awesome, brand new Jeep Renegade on a 4 year loan and have enough left over for gas, insurance, registration and other costs!


     A very important point to remember is that all SVG Motors dealerships provide 3 full years of FREE oil changes with every vehicle purchase, whether it’s new or used! This will save you money no matter what scenario you choose!


d.    Another important topic to discuss is equity. If you’re trading in a vehicle, you may owe more money on it than it’s actually worth. If this is the case, it’s called having negative equity. If you’re in this situation, the difference between what you owe and what you’re given as your trade-in value will be added to your new loan. This will make your payment higher. Let’s look at an example for explanation:

                                               i.     You are trading in a 2013 Chevrolet Malibu LT Sedan 4D with 95,000 miles that’s in good condition.

                                             ii.     When you bought the vehicle, you got a long-term loan to make the payments affordable, plus you had to pay a high interest rate because you didn’t have any money down and your credit score wasn’t great. Despite paying your monthly payments on time for many years, you still owe $5900.

                                            iii.     The dealership offers to buy your car for $5435, which is the average trade-in value of the vehicle mentioned above according to Kelley Blue Book. To buy your car, the dealership will have to pay off your loan amount of $5900. This means the dealership will have paid $465 more for your vehicle than what it is worth. This $465 of negative equity will be added to your new loan, in addition to the purchase price of your new vehicle, ultimately making your payment a bit higher. All dealerships will handle negative equity in the same way.

 

We hope this post has helped you understand how to determine a budget when you’re thinking about getting another vehicle. If you have any questions or need help figuring out what you truly can afford, feel free to fill out our simple, fast, online pre-approval credit form.  A friendly representative from our dealership will call you and help you figure it all out. All SVG Motors dealerships promise to give you a Superior Value Guarantee on every vehicle purchased, so it’s definitely in your best interest to shop us first. Stay tuned here to our blog as we will be posting new Vehicle Buying Tips quite often!

 

 

 

 

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