Just because you want that brand-new car doesn’t mean it’s good for your finances.

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All you wanted to do was stop and peer in the windows of the line of parked SUVs at the new car dealership. Now you’ve taken a test drive and love the vehicle. Maybe you’re already fantasizing about a cross-country road trip in your new ride. Hold up, though.

You may want to slam the brakes on your impulse purchase, at least until after you ask yourself some hard questions about how a new car – and all the costs that come with it – will affect your budget.

1. Can I afford the monthly payment?

Can I afford the monthly payment

Obviously, you need to make sure you can afford the monthly car payment before you buy a new car. Yet it’s easy to get so swept up in the test drive and how wonderful your life will be if you can drive this beautiful car, SUV or truck every day.

Find out exactly how much your monthly payment will be and for how many months or years. Deduct the amount from your monthly budget and if you don’t have much left over, think about saving a larger down payment for a new vehicle to purchase later.

2. What could I spend that $400-$600 a month on instead?

The average monthly payment in 2022 for a new vehicle is $609, according to Bankrate.

What else could you do with that car payment money? Massages? New clothes? More dinners out? Emergency savings? That money might be better spent on things that make your life more fulfilling or secure.

Find out: 10 Questions to Ask Yourself Before Making a Big-Ticket Purchase

3. Are these the best loan terms I can get?

Are these the best loan terms I can get

The dealership will probably offer to finance your new vehicle, since it can make money on financing. Sometimes, you may get a sweet deal with 0% interest or another low rate. However, on a purchase this large, it makes sense to shop for the lowest interest rate and best loan terms.

You might save hundreds of dollars in interest by stepping away to shop for loans. And you might also change your mind once you take time to think about committing to such a huge purchase.

4. How will my credit score affect a car loan?

Generally, the higher your credit score, the better your chances of being approved for a better interest rate or, in some cases, being approved for a loan at all.

If your credit score is below 661, you may want to postpone a new car purchase until you can bring your credit score up to a prime (661-780) or super prime (781-850) rating. That way, you’re more likely to receive a lower interest rate and better loan terms when you take the new car plunge.

5. What if I saved a larger down payment before buying a new car?

What if I saved a larger down payment before buying a new car

Rather than jump into an impulse purchase, find out what monthly payments would be on the vehicle you want, but don’t purchase it yet. Instead, deposit that amount into savings each month for a down payment on a future new car purchase.

For example, if you save $545 per month for 12 months, you’ll have $6,540. Can’t afford to save that much monthly? Then you probably can’t yet afford to buy a new car.

6. How much money do I have in emergency savings?

If you lose your job or run up a big medical bill, you must still make car payments. That’s where having emergency savings comes in. You’d hate to have your new car repossessed because you missed payments.

You also may have to tap into savings to pay related new car costs such as sales taxes and licensing fees.

7. How much will I pay to insure this vehicle?

How much will I pay to insure this vehicle

Make sure you factor auto insurance premiums into your total new car purchase. The average annual premium for a 30-year-old, single, male driver is $1,869 according to Bankrate, a financial products comparison and personal finance site.

Find out: How to Save Money on Car Insurance

8. Do I need this car?

If your current car racks up expensive repairs regularly, you probably need a replacement vehicle. However, if the car you have runs great, is affordable or paid off and you just want something new in your life, maybe going into debt for tens of thousands of dollars isn’t a smart move.

The average loan for a new car is more than $32,000, according to Experian’s Q2 2019 State of the Automotive Finance Market Report. If you don’t really need a new car, consider driving your current vehicle longer while saving a sizeable down payment for when you do need a new car.

9. Have I done my research?

Have I done my research

Before you buy a new car, always do your research on the manufacturer and model. And no, that doesn’t mean taking everything the salesperson tells you as fact.

Search auto review and research sites and reports online before closing the deal. You may find that model is known for mechanical problems or that other people who purchased the car, truck or SUV don’t think the vehicle is worth the price.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

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