Dye Autos Denver Area Truck and Automotive Blog
How to Determine How Much You Should Spend on a Used Car
It’s super smart to know your financial health before setting sights on a new car. Many customers we talk to don’t come equipped to determine the best used car for their budget. You can save yourself a lot of money – and a lot of headaches – by doing some simple math before you make your final decision.
If you don’t have a clear picture of how much you can actually afford, it’s easy to bite off more than you can chew. Many people fall in love with a dream car and ignore red flags when it comes to the math.
Even though your (new) used car has monthly payments that seem manageable, it’s always best to know for sure.
How Much Should You Spend on a Used Car?
Buying a used car is one of life’s biggest expenses, and it’s a purchase where you have control over how much you spend.
Financial experts offer wildly different advice on how much you should spend on a car. One school of thought holds that all your automotive expenses (gas, insurance, car payments) should not exceed 20% of your pretax monthly income.
The general rule of thumb is that you shouldn’t spend more than 20% of your monthly income on your car payment.
Knowing your monthly fuel and insurance costs will also help you make an educated decision if you’re considering multiple vehicles. Some may cost more to fuel up; others might have a higher cost to insure.
What you’ll pay
Most buyers with better-than-average credit will pay less-than-average for financing.
Down Payment
A down payment is usually required by lenders, and it’s definitely a good idea. Why?
- It will reduce the amount you’ll need to borrow.
- It improves your chances of loan approval.
- You may get better terms with a down payment.
- It will reduce your monthly payment.
Your credit history will determine the size of the used car loan you can get. If you have less-than-average credit, the high interest rate will make the amount of your loan even lower.
A down payment will offset the interest, taxes, and fees and widen the selection of vehicles you can choose from.
Taxes and Fees
- Calculate your sales tax rate.
- Estimate your License fees.
- Ask your dealer how much their documentation fee is.
Pro Tip: Know your credit score and work on your credit before you start shopping.
Check your credit report as soon as you start thinking about buying a used car or truck, even if it’s months in advance.
If you’ve got less-than-ideal credit, taking this action will help you even more…and save you tons of time and money.
By cleaning up your credit before applying for a loan, you improve your chances of being approved with decent terms. Cleaning up your credit will include paying off past due accounts, disputing credit report errors, and adding positive information to your credit report.
Do your homework before you buy.
By determining how much you should spend on a used car or truck, you’ll be wise to the bigger picture of vehicle expenses BEFORE you head out the door. You’ll end up with a great vehicle that’s best for you, your family AND your wallet.
Call us!
We shared these tips with you because our current customers have told us how grateful they are for this information. We enjoy helping people decide on the right used car or truck.
We can help you too! Call us at (303) 286-1665 or simply fill out our handy contact form >>here<<.
Read MoreBuying a used car can seem like a maze of difficult decisions. At Dye Auto, we believe that getting the car of your dreams should be easy. That’s why we began this blog – to share our expertise with you, so that you feel as comfortable as possible with your decisions.
There are a lot of questions that customers ask and over the years, we’ve answered hundreds of them. We believe that information is power and getting the answers you need ensures that fact.
Where we shine is in answering the questions that many customers don’t know they need to ask.
We recently wrote about the “Answers to Your 6 Biggest Used Car Financing Questions.”
- Do I need a down payment?
- Can I get approved if I have bad credit?
- Why does a car’s age and mileage affect my financing options?
- How much should my payment be?
- How much are can I afford?
- Should I get pre-qualified?
(For more in depth answers to these questions, simply click over to our post via the link).
As time goes on, we’ll cover every question you might not know to ask when buying a used car.
We’re excited to help customers buy cars. We’ve been in the Denver / Wheat Ridge area for many years and we have a combined 100 years experience in selling cars to great customers (like you).
We’re not like the other guys.
- We have a streamlined process that gets you in and out in 90 minutes.
- We’re relaxed and easy to do business with.
- We’re just like you – we dress casual and we aren’t pretentious.
- We have access to financing for anyone.
Here are 6 more questions to ask when buying a used car
You ask – we answer!
1. Are there any potential penalties or fees on my car loan?
Make sure you know about any early payoff fees or extra charges that occur during the term of your car loan. This is something you’d find in the “small print” so ask the finance manager to explain it all.
2. What’s the best thing to do with my trade-in?
Your trade-in is part of the deal making process and you should use it to your maximum benefit.
The current market is what sets the price for your trade-in. It’s not what you think it might be worth.
It’s possible to get more selling your car privately, but it’s definitely more of a hassle. The best approach is to do your homework. Know what your car is worth and come to the table ready to make a deal.
For more information on what to do with your trade-in, click here for our post: Do’s and Don’ts of Trading in Your Car.
3. Is my deposit refundable?
In some cases, you’ll leave a deposit on a car you want to buy. This tells the dealer that you’re serious and it saves the vehicle from being sold before you can make all the arrangements.
Before you give anyone a deposit on a vehicle, be sure you know whether can you get it back if you change your mind. Get a receipt and make sure it says “refundable” before you hand any money over.
4. Should I buy a service contract?
Used car buyers are often offered an Extended Service Contract when there is no other warranty available for the car being sold. This is usually on older cars, well out of their manufacturer’s warranty.
If you plan on keeping the car for a long time, a service contract is worth considering. Make sure you get the answers to these 4 questions before you say yes.
- Who stands behind the warranty?
- What is covered exactly?
- What is the deductible for each claim?
- Will you have peace of mind if you don’t buy it?
5. May I see a copy of the car’s history report?
Vehicle history reports have become an integral part of any used-car purchase. They are one of the best ways to learn about a given vehicle’s past and help make your search for a used car much easier.
At Dye Autos, we provide a free vehicle history report from CarFax on each of our vehicles.
6. Why should I buy from you?
This is a GREAT question to ask your salesperson and it’s important to listen carefully to the answer. You want to feel comfortable with your salesperson and this is a nice icebreaker.
Every good car salesperson should know exactly why their customers buy from them.
Got more questions?
Call us at (303) 286-1665. Dye Autos is here to help!
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