Budgets and Auto Loans

Millions of people will be heading out to various local automobile dealerships in the coming weeks and months in the hopes of getting a great deal on a new car or truck. Though automobile industry experts are all chanting “buy now!” the reality is that you should only consider an auto purchase after working out a complete budget.

Interestingly enough there are millions of consumers who don’t have even a very basic weekly or monthly budget firmly in place. This would take into consideration their living expenses, various debts and daily expenses such as those for food, transportation or even entertainment and clothing. When every penny spent is placed on a worksheet or spreadsheet, it can often come as quite a shock.

For example, the shopper who is considering any vehicle that will cost them between $350 to $450 dollars per month might be surprised to know that their actual budget can only safely pay around $300 to $350 per month at the very limit. How could they be so far off the mark? They didn’t create a complete budget. Where any auto loan is considered, it is going to be important to also note the increased vehicle insurance costs, and difference in fuel usage, and any repayment in addition to the loan (if the down payment was borrowed, for example).

Let’s begin by assessing insurance costs - most insurance requirements will vary from state to state, but most insurance companies want comprehensive coverage on any vehicle that is currently financed. This means that an estimate from the insurance company should be considered only after a consultation with an insurance agent, and not taken from a rough estimate provided by the dealership or any other seller.

Next, consider the fuel consumption of the vehicle. If the shopper is savvy and earth-friendly, they will be purchasing a car that gets excellent miles per gallon, or they might even be purchasing a hybrid vehicle. This line item on a budget must be determined in advance of a purchase; in fact, it is generally a good idea to determine how much money is spent on fuel on a weekly basis. Why is that? Because we all need to be more mindful about our carbon footprint, it is a good idea to identify whether or not we are wasting gas or using more than is advisable.

Finally, add any loan repayment amounts to the budget as well. For instance, some people will take a small loan from a friend or even from a car title loan company in order to obtain the funds for a down payment. The repayment of this loan must be added to the total “cost” of the auto loan as well.