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What can I Afford to Spend on a New Car?
Getting a brand new car is a complicated emotional and economic issue for most people. Often shoppers find a car model and color they really want to own and no matter how bad the safety, repair or customer service records, or how high the price, they stand by their choice. While it is certainly a good idea to buy the car of your dreams -- a car that brings enjoyment is generally cared for properly, retaining more of its resale value, a car payment that outstrips your budget can lead to serious financial problems.
The cost of a new car includes many expenses along with the price. These additional costs include the interest on the loan or lease payments, loan and lease fees, tax on the purchase, the license fee, insurance coverage, enhancements (like a better stereo or a sunroof), maintenance, repairs, depreciation and, of course, gas. These expenses, as well as the price of the vehicle, need to be taken into consideration when determining what you can afford to spend for a new car.
In 1923 Henry Ford shocked the business world by paying his workers the incredible sum of $5 a day, then allowing Americans making that wage to buy a $265 Model T on the "layaway" plan. The customer was given a coupon book to pay the dealer $5 a week until the car was paid off. Once paid for, the customer took delivery. That was the informal beginning of payment plans for cars.
In today's "get-it-now, pay-later" world a vehicle buyer no longer pays up-front before taking delivery. We pay for the car while we use it. Unfortunately, buying a car on credit can allow one to buy more car than one can afford. We can choose a Toyota Camry, for example, when we should be considering the price-and-feature-comparable Toyota Corolla or Ech. All we have to do is take out a longer loan.
All of this "emotional" buying is made more poignant because we're bombarded with advertising that sells us features we think we need, but perhaps do not.
For example, how often do we see men buy cars they think will turn women's heads? Or a woman who covets a Mercedes because it fits her image. Madison Avenue has learned to appeal to our emotions, circumventing our sensibilities. Those images are deeply and deliberately associated with all products today. Many automakers have successfully equated their make with a specific concept. For example, Volvo is safety, Mercedes is elegance, Lamborghini is decadence, Volkswagen is fun and young, Pontiac is excitement, GMC is comfortably in control, and Saab is independence. All of us are influenced by advertising. It is important to buy the product that best meets your needs and budget.
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