In your lifetime you’ll probably make a handful of big purchases: a home or two, a car or two, maybe a boat and other bits and pieces.
A car tends to be a standout purchase; it’s something you’ll hopefully come to enjoy for many years. A good car will provide a safe journey for you and your family. It will provide comfort, transport, independence, freedom and opportunities. A “bad car” – that is a poor investment, will probably wind up costing you a lot in maintenance, repairs and probably wont last that long.
I have seen so many of my friends make mistakes when financing a car, that I want to help you avoid the same. Mistakes can be very costly, put a lot of strain on you financially and even start to affect your relationships. There are lots of different companies, such as Get Approved, that offer extremely competitive financing rates. As with anything, please make sure you’ve really thought about it before you sign the contract. Here are 3 mistakes people make when financing a car and what YOU can do to avoid them:
1) Buying Based on “Future Income”
Some people finance a car based on what they expect to earn after they graduate from university, or they imagine their income will consistently rise. Unfortunately life does not go the way planned, so buying something expensive with the expectation you’ll be able to afford it is a bad idea. I studied a bachelor of Science and had dreams of earning ridiculous sums of money. I have never used my degree for work and never actively pursued a job in this field and I know I’m not the only one. If you get a car loan, or any loan for that matter, make sure the balance is proportionate to your current earnings – not your expected earnings.
2) Not Thinking About the Future
One of my friends recently moved back to New Zealand after traveling. She bought a nice, expensive car on finance. She quickly found a job and was making regular payments, when after being home for 12 months decided she wanted to move to Australia. She still had the majority of the car loan owing and ended up selling the car, but she sold it for a considerable sum less than she paid so she still owes some of the loan even though she no longer has the car and isn’t in the country. You need to be realistic about how long you’ll use the car for and decide whether that’s long enough to justify the loan.
3) Having no Emergency Fund
At the moment I’m saving for an emergency fund which will be $10,000 initially and then I hope to double it over the course of the year. This way if anything breaks in my own car I can easily repair it without worrying about the cost. If you’re taking out a car loan and something goes wrong and you can’t work for a few months, or you have a family emergency and can’t afford your car loan repayments, what will happen? Do you have a safety net? Don’t make the mistake of defaulting on your car loan!
Have you ever bought a car using a car loan? Was it a straight forward experience or were there a few road bumps along the way?