Understanding Your Finances Before Purchasing Your Next Mazda

The prospects of getting a new car is exciting. There are so many options to choose from and the thought of driving something shiny and new is exhilarating. But the process of leasing or financing can be confusing. It is important to remove the emotions out of the purchasing process and start with understanding your finances before purchasing your next Mazda. Even before thinking about the type of car you want, understanding how much you have to spend is crucial. You want to avoid being “car poor” leaving yourself with no money for anything else. Trust me, your future self, will thank you. So, how can you be a responsible consumer and try to avoid any forthcoming issues?

Understanding Your Current Finances

A car is huge expense. Financing a car can leave you with years of monthly obligations. This is why it’s important to understand what your current monthly income along with the other household expenses. Begin with reviewing your net pay (and your spouse’s, if applicable). From your net pay start subtracting the expenses from your current bills. If you do not know where to begin, start with the major necessities such as; the mortgage, insurance, student loans, cell phone, savings, and other household bills. Knowing exactly how much to you have to spend will help you determine what kind of car you can comfortably afford.

How Much Money Should You Spend on A Car?

Mitch Strohm came up with the 20/4/10 theory. He suggests to pay at least 20% of the car price for the down payment, find a 4-year term loan, and don’t exceed 10% of your monthly income for the total of the vehicle expense. Strohm says most people will be comfortable spending within this range and exceeding it can become a financial burden. Here is a auto calculator to help you.

Understanding Your Credit Score

Now that you know how much you have to spend the next step is understanding your credit score. It is likely you have a pretty good idea of how important a credit score is when it comes to applying for a loan. A credit score will determine the amount and interest rate a bank will allow you to borrow to finance a car. A credit score will also be the determining factor when leasing a car. Click here to understand the difference between financing and leasing a vehicle. If you haven’t been keeping track of your credit score, there are plenty of companies like Credit Karma that can help you understand and maintain a good credit score. They have a monthly service you can subscribe to for further in-depth assistance but their free service is pretty great.

What other expenses should you consider?

Think of the 3 “I’s” - interest, insurance, and incidentals. As mentioned above, your interest rate will be determined by your credit score. Be sure to incorporate the interest rate and principal to the total monthly car expense.

Insurance is another tricky one. A person with a good driving record, reasonable car, and above the age of 25 will pay an average of $136/month in California. But other factors such as zip code, type of car, marital status and gender can lower or raise the premium. As you are narrowing down what type of car you want, be sure to research insurance quotes to get a better idea of what your monthly car expenses will be.

The final “I", yet very important thing to think about, are the incidentals. These incidentals have a lot of variables. First, car registration. This annual cost can be pricey depending on the value of the car. If you are on the market for a luxury car, your registration will cost a lot more than a used car with a lesser price tag. Another incidental is the maintenance of the vehicle.

Although maintaining your car will not be a monthly expense, serving your car will have to be done regularly. These incidents include oil changes, tire care, washes, gas, engine care and any damages that might be done to the car. Keep in mind some cars might be cheaper to maintain than others. Do some research on the expense of maintaining the type of car you are thinking about purchasing.

Discounts & Specials

Good news is the better your credit and financial situation is, the more specials and discounts you can take advantage of. But, there are always specials and discounts out there so be sure to look around. Shopping for the best deals can save your thousands of dollars.

Go Get Your Car!

Once you have done some research the process of purchasing a car will be easy. More importantly, you will avoid a long term financial hole. The goal is to purchase a car within your means. You will feel good driving off that lot with a car you feel financial comfortable with.