New car buyers are currently facing significant challenges as prices have seen a substantial 28% increase over the past five years. This rise, coupled with concerns about a potential spike in Manufacturer's Suggested Retail Price (MSRP) due to proposed tariffs, is putting a strain on consumers. Cherry Dale, a financial coach from the Virginia Credit Union, emphasizes the importance of having a well-thought-out plan before making a car purchase. She advises buyers to assess their budget and determine what they can comfortably afford as a monthly car payment. "A good rule of thumb is 10% of your net income," Dale says. "For instance, if you earn a net income of ,000 per month, a car payment of around 0 would be appropriate. It's crucial to stay within these boundaries." Dale further highlights the significance of considering factors such as the type of interest rate and down payment amount. Understanding the monthly cost and its impact on the overall budget is essential. Buyers should also take into account yearly property taxes if they reside in one of the 25 states that impose such taxes on vehicles. Additionally, gas or electric costs, insurance premiums, and maintenance expenses should be factored into the budget. "When it comes to choosing between new and used cars, there are pros and cons to consider," Dale advises. "New cars offer the excitement of getting exactly what you want and may come with warranties. However, they depreciate in value much faster than used cars. On the other hand, used cars can provide a more affordable option that may meet your budget immediately. It's important to weigh these implications and understand the opportunity cost of each decision." The Federal Trade Commission (FTC) operates a free website that offers expert advice on buying and owning a vehicle. This resource can be invaluable for buyers seeking guidance in this complex process. In conclusion, making a well-informed decision when purchasing a new car is crucial in today's market. By carefully considering various factors and following the advice of experts like Cherry Dale, buyers can navigate the challenges and make a purchase that suits their needs and financial situation.

Key Takeaways for New Car Buyers

Budgeting and Monthly Payments

Buyers need to establish a budget and determine an affordable monthly car payment. Taking 10% of their net income as a guideline helps in setting a reasonable limit. For example, if a person earns ,000 per month, a 0 monthly car payment would be within a reasonable range. This ensures that the car purchase does not cause financial stress in the long run.Understanding the impact of different interest rates and down payment amounts is also crucial. A lower interest rate can save a significant amount of money over the life of the loan, while a larger down payment can reduce the monthly payment and overall interest paid.

Considering Property Taxes and Other Costs

For those living in states that charge property taxes on vehicles, it is essential to factor these costs into the budget. Yearly property taxes can add to the overall expense of owning a car.In addition to property taxes, gas or electric costs, insurance premiums, and maintenance expenses should also be taken into account. These ongoing costs can vary significantly depending on the vehicle and usage, and it is important to have a clear understanding of these expenses before making a purchase.

New vs. Used Cars

New cars offer the allure of getting exactly the features and specifications one desires. They often come with warranties, providing peace of mind. However, new cars depreciate rapidly in value, which means that the owner may lose a significant amount of money if they decide to sell the car in the near future.Used cars, on the other hand, can be a more affordable option. There may be deals available that fit within a buyer's budget immediately. While used cars may have some wear and tear, they can still provide reliable transportation at a lower cost.Buyers should carefully consider their needs and preferences when deciding between new and used cars. It is important to weigh the pros and cons and make a decision that aligns with their financial situation and long-term goals.