Recently my nephew reached out to ask if I had any tips, advice on making a large vehicle purchase. He was looking at buying a full size truck with a sticker price of $25,000. He also mentioned having fair credit, thus the loan would be a high interest rate. Generally, I would say just don't do it, but ultimately everyone must make their own choices based on their own judgement.
Ultimately, I broke down my advice to these eight tips. I think the one many people don't consider is number five.
1)Determine the full price of the purchase. Sales tax, licencing, total interest over life of the loan and insurance. A car purchase is never just the sticker price.
2)Use an auto loan calculator to work through various monthly payment scenarios. Longer term, will cost more interest, but may have lower payment. Here is a great calculator.
3)Financial experts advise not to have a monthly car payment of more than 10% of your monthly take home (after tax) pay. This leaves room for other expenses, but is just a guideline. Know the maximum you can afford.
4)Get the shortest term (length of loan) and interest rate you can that fits into your budget. If you can, pay more than the monthly payment to pay off faster and save interest. If it doesn't fit into your budget don't buy it, buy something less expensive.
5)Ask yourself if the purchase and debt will keep you from other financial goals, such as paying other debt down, buying a house, or saving for retirement. Adjust accordingly.
6)Get an inspection from a certified mechanic before purchase so you know what condition vehicle is in before you commit to the debt.
7)Always keep cash on hand for licencing, repairs and insurance deductible.
8)Consider purchasing GAP insurance if the vehicle loan balance will be more than Kelly Blue Book trade in value.
What tip is your favorite? Do you have other tips for people making large purchases, like a vehicle loan?
