Are you in the market for a new car?
Most people like the process of searching for a new car and test driving, but no one really likes the car dealership.
There are two reasons most of us don’t like the car dealership.
We’re about to drop a bunch of money
Someone is there to convince you to drop even more money
We’re already apprehensive about how much we’ll spend on that new car purchase, and we know we’re going to be pressured to spend even more. In a nutshell, this is why you need a budget before you go to the car dealership. But if you need more convincing, we can break it down to the details.
Here are 6 reasons why you need a budget before going to the dealership (or you’ll be sorry).
You don’t want to talk about monthly payments
We’ve already covered that it’s someone’s job to get you to pay more than you intend to at the dealership. Actually, it’s basically everyone’s job there.
And one tactic they use is to sway the conversation towards monthly payments instead of your total spend. Why do they do this? Because over 60 months, $1,000 is under 17 bucks. And you’ll feel cheap balking at 17 bucks.
The dealer’s goal is to get you to pay more
Car salespeople are often very nice people with families of their own. They aren’t exactly the enemy, but they definitely have different goals than you do. When you walk into the car dealership, your goal is to pay as little as possible. Their goal is to get you to ay as much as possible.
In most cases, car salespeople work on commission. That means they make more when you pay more. This doesn’t mean they’re heartless, but they just have different motivations.
Because of this, you need to take measures to protect yourself, and a budget is an important one.
The more you finance, the more you’ll pay
If you’re planning to finance your vehicle, you’re going to pay a percentage for every dollar you spend. So unless you’re paying cash for those upgrades, you’re going to pay more than you expect for each add-on.
Let’s say you choose an addon that adds $1,000 to your total bill. And since it’s above and beyond what you were expecting to pay, you’re financing the full amount. At 6 percent interest over 5 years, you’ll end up paying about $160 over the life of the loan in interest alone.
When you’re making the decision to pay more than you expected, remember that you’re paying more than the purchase price. You’ll probably also pay tax on that upgrade, which could put the total upgrade cost in this example (upgrade + interest + tax) over $1,200.
Having a budget is the only way to stay on track
If you don’t have a budget, you won’t even know if you’re spending too much. You’ll essentially be going on a whim. Whenever it “feels” like you’re spending too much, you’ll have to stop.
But here’s the problem: Budgets aren’t an emotion.
Budgets are black and white, right and wrong. You won’t know where you stand unless you crunch the numbers.
Spending too much on autopayments could impact your finances for years
Whenever we talk about budgets, it’s not in isolation. In this case, we’re talking about a car budget. But in order to make a car budget, you have to have a good handle on your finances, which means you’ll need other budgets.
So, if you aren’t budgeting properly or you spend more than you budgeted, you could end up messing up your financial plan for years to come. Remember, this is an agreement that will last for 3 to 5 years.
A budget gives you confidence
Regardless of your financial situation, no one wants to get the wool pulled over their eyes. No one wants to pay more than they should for their car. And if you have a budget, it’s like a guiding light. Let’s say your budget is $15,000. Knowing your budget, you’ll be able to stick to your guns. You’ll only look at new or used cars under that budget. Make your budget your boss and the decision is out of your hands.
Going to the car dealership can be a stressful experience, but you can reduce that stress by creating a firm budget and sticking to it.