Do It Right: Buying A Car

Is it the right time to be buying a car?

When buying a car, it’s easy to get caught up in the excitement and forget about the finances.

In other words, it can be hard to do it right.

If you’re at all like me, a drive down the street, a look at what’s in your neighbor’s driveway or time browsing USAA’s Auto Circle® vehicles can have you pondering the virtues of a new or different vehicle.

In this series, I’m exploring the idea that the right time to make a financial move hinges on whether you can make it in a financially responsible way.  I know that’s boring, especially in the context of a new set of wheels, but hang with me. A little restraint now can pay off big over the long-term.

Here are a few questions to ask yourself when determining if now is the right time to buy a vehicle:

Does It Fit My Budget?

Obviously, that’s a question that will vary based on your situation, but if you can cap all your transportation costs at 10% of your gross income, you should be on track. That includes gas, maintenance, insurance and the like. Yes, I know that can be a chore, but my goal is for you to have less financial stress and more flexibility.

Am I Getting A Decent Loan?

Too often, I run into people with high double-digit interest rate car loans. That might have been reasonable in 1985, but it’s not acceptable in today’s interest rate environment. If your credit history keeps you from qualifying for anything but that type of loan, then you should buy nothing but bare-bones transportation while you work to bump up your score.

How Long Will I Be Paying?

Remember, the longer the term of your loan, the more you rack up in interest and the more likely you’ll be upside down. Yes, that means the eight-year loan you’re looking at in order to squeeze too much car into your budget is a bad idea. Shoot for a loan of five years or less.

Does This Vehicle Suit My Lifestyle?

When my son was 14, I bought a car I intended (wink, wink) for him to drive when he got his license a couple of years later. Who was I fooling? My wife and I were not about to give him the keys to a hot little hatchback with manual transmission and too many horses. That ended up being a bad purchase. Buy something you can drive for an extended period of time, not something that you’ll regret in short order.

If you’re heading down the path toward a purchase and can’t answer all of those questions with a resounding “yes,” it may not be the right time or the right vehicle to buy.

About the Author

JJ Montanaro
Joseph “J.J.” Mon­ta­naro is a CERTIFIED FINANCIAL PLANNER™ prac­ti­tioner at USAA with more than 19 years of expe­ri­ence in the finan­cial ser­vices indus­try. JJ also served in the U.S. Army for six years on active duty, and in 2009, he retired as a lieu­tenant colonel in the U.S. Army Reserve.