When you enter into a fixed term financing agreement to purchase a car, it is easy to forget the key factors that influence your ability to afford it. Basic budgeting principles suggest that you will initially need to calculate your monthly income and outgoings, which will determine a set amount of disposable income. After setting this amount of money aside, it stands to reason that you should have established an estimated budget for your vehicle that can be taken forward into the market.
While this is fundamentally sound logic, however, you will need to account for a host of additional factors before making a final decision. The most prominent relates to the insurance premiums that you will be required to pay on your new vehicle, as these can be particularly extortionate if you are an inexperienced, young or reckless driver. With this in mind, how can you account for the annual cost of insurance and the additional economic triggers that influence your ability to afford a new car? Consider the following: –
Strive to Minimize your Annual Insurance Premiums
If you accept that insurance premiums are changeable and influential in determining the car that you buy, there are several steps that you can take to reduce them. The first is to compromise on your choice of car, and select a model that suits your level of experience and motoring history. In addition to this, you should also consider completing an advanced driving course, as this will enhance your ability as a driver and create a favorable impression on insurance providers. On a final note, you may also wish to add an experienced and well qualified motorist as a second driver on your claim, as this will also help to reduce costs and present a more attractive deal to insurers.
Consider Inflation and the Consumer Price Index
While insurance premiums can directly influence the amount that you can spend on a new car, there are other variables that provide an equally prohibitive challenge. The headline measure of inflation provides a relevant example, as this tends to rise on a yearly basis regardless of whether the national average wage improves or declines. The Consumer Prices Index (CPI) reflects the average cost of living, and its monthly fluctuations can either increase or diminish your levels of disposable income. This is why you should always aim for a mid-range vehicle that is priced far below the maximum that you can afford, as this affords you room for maneuver when it comes to making monthly repayments. So should you lose a source of income or be faced with an unexpected financial crisis, you can manage your burden of debt without considering short term loans.
Are you in Full Time Employment?
Technological advancement has changed the face of the modern workplace, with an increasing number of citizens now telecommuting, engaging in temporary contracts or choosing to work on an independent basis. While this has afforded people the opportunity to work in a failing economy, however, it has also undermined long term job stability and rendered financial security a thing of the past. The nature of your employment contract will at least partially determine the amount you spend on a new car, and in some instances whether you will make a purchase in the first place. If you do not have a viable contract of full time, permanent employment, then you should carefully consider other options such as leasing or buying a quality used vehicle in cash. Entering into a fixed financing agreement without a sustainable source of income is extremely foolhardy, so you should consider your options in line with real time circumstances.
The Bottom Line
By paying attention to seemingly insignificant details, it is possible to purchase an affordable vehicle even in a strained economy. Once you have addressed your personal circumstances, the next step is to partner with a reputable financing partner in the market.