Updated: Mar 16
m frequently brought into conversations with friends, family, and associates who are shopping for a car, and I’m almost always shocked by some of their thoughts and assumptions. In fact, I had this very type of conversation yesterday with someone who works for me.
So, I sat down and decided to write this post, what to consider when buying a car.
Trust me, I do not tell people what to do in these scenarios. I often ask questions, and by answering these questions, they usually come to conclusions. So, I thought, “hey, let me do the same thing here on my blog, and that way, I can help you, too!”
You’re at a fork in the road.
You can move on, thinking this information is all ‘common knowledge,’ or you’ve given all of this information thorough consideration, but… maybe you haven’t!
So, as you’re heading into this decision I hope you give me a few more minutes, I’ve put a lot of effort into this post, and the contents below have helped a LOT of people.
For all those who are still with me, here we go. For those taking the other road, I do hope you’re not speeding towards the proverbial cliff!
Lot’s of people make a mistake at this point, and it’s like pulling out of your driveway and turning the wrong way. Sure you might get to your destination, but it’s probably going to be a harder journey than it needs to be!
Buying a car is an enormous expense, so my list of what to consider when buying a car is not going to be short!
The Car’s Purpose
Yep, people get this wrong!
For this part, I want you to separate the car’s ‘purpose’ into one of two categories, personal use or commercial purposes.
Personal Usage – What to Consider When Buying a Car
Too often, people purchase a car, truck, or SUV for reasons that don’t make ANY sense. Don’t believe me, I bet you’re living not too far from the guy with the 2-seater sports car, it’s his family of five’s second car. That car makes no sense!
Sure it’s satisfying some sort of need, but it’s not helping him if he’s got to take his family somewhere.
So, when you’re looking to purchase a car, consider the basics like how many seats should it have?
How much room do I need to carry stuff? If your daughter’s a budding tuba star, I’d steer clear of buying a Mini Cooper.
Buying a Commercial Vehicle
For those who can do so, buying your next vehicle for commercial purposes can provide you with a lot of financial benefits!
Buying a vehicle through a company, or qualifying in another manner can allow you to recognize tax benefits, especially for larger vehicles.
These benefits can include:
Listen, I’m not a CPA, so I’m not able to tell you if you qualify for these types of deductions, but if you do, why not enjoy the savings!
Now, I do know that there are sometimes deductions only available for vehicles a specific size, but that should not be the significant decision-making element!
You still want to look at the vehicle’s functionality when selecting the types of cars you want to consider.
So, you’ve determined the functional elements you need in your next vehicle, so you should be able to put the car into one of the popular segments:
Now, within these categories you will usually find these types of additions:
So, you can have a Compact SUV or a Full Sized Convertible. There’s subcompact sedans and Mid-Sized Mini Vans, and I can go on, and on, but you get my point.
There are lots and lots of possible combinations, and you should find the specific combinations of size, features, and convenience that best suite your needs.
I know what you’re thinking, “but what’s it going to cost?”
You know what you need, now let’s determine the financial parameters you should shop within. In other words, what’s your budget going to be?
You Budget – What the Most You Should Spend
Lots of people make mistakes here!
Too often people take a stab in the dark at this number. They either pull it out of thin air, or they look at the prices of cars and let that dictate their decision.
The car’s listing price shouldn’t dictate your decision, your finances should! But, not many people know how to calculate a budgetary figure, so I recommend the 20/4/10 Rule.
This is an excellent way to calculate the maximum amount you should consider spending on your next car. It breaks out like this:
You should put at least 20% down on your next vehicle
That means, if you’re considering a $25,000 car you’ll want to put $5,000 down. When you’re shopping for a car, the term ‘down’ means an amount you will provide at delivery of the car to reduce the amount to be financed. If you decide you want to purchase a $15,000 car, you’re going to put $3,000, and you’ll finance the remaining $12,000 (you’re going to buy the car for $15,000).
The ‘4’ in the rule stands for financing, you will not finance for more than 4-years. This prevents you from spreading your payments out too far and incurring too much interest costs.
The third part of the equation relates to your finances, your gross income. Do not exceed more than 10% of your gross income.
What’s Gross income? It’s all the income you receive from all sources. To calculate gross income accurately, you should include wages, tips, settlements, pensions, or other retirement income. In other words, your total earnings.
Getting to this figure is easier for some than others. If you’re a bartender, who makes tips I’d recommend you look at your income from the last tax year, and compare that number to your current earnings, and make the best possible estimate of future income.
Let’s go through how you should calculate this information.
A simple example will help you grasp the concept. You’re someone who’s on a salary, and you earn $52,000 a year, that’s $1,000 a week.
There’s 52-weeks and twelve months in a year, so the average month has 4.33 weeks. So, on average, you earn $4,330.00 a month, and 10% of that would be $433.00.
So, assuming you’re not buying the car outright, you’re not paying up front the total amount due for the vehicle, your monthly cost for the car should not exceed $433.00.
This monthly $433.00 should cover:
In the past, I’ve gotten a lot of push-back about the 20/4/10 Rule. It’s a principle forged from sound financial analysis, but I get it, it’s your money, and you can spend it any way you want. If allocating a majority of our take-home pay to a car payment enhances your life, please do so!
Here’s a great spot to mention that although all cars use some type of motor, and run on wheels, not everyone views them in the same manner. For some, a car is a means of transportation, others love cars, and they generate a great deal of joy and satisfaction around them. It’s OK to fall anywhere along that spectrum, and make your financial decisions as you see fit!
Important Safety & Convenience Features
During my lifetime, I’ve seen tremendous advances in vehicle safety. The thought process is shifting from mass and strength to controlled impact absorption that continued to advanced passenger protection features.
These technological advances have saved lives!
And, the best news I can share with you is the advancements are continuing!
Now, cars are being equipped with technological features that correct driver errors in the endless pursuit of driver safety.
Here’s some great features you should look for in your next car:
Rear AEB – Rear Automatic Emergency Braking – brakes are automatically activated to prevent you from backing into something
HAEB – High-Speed Automatic Emergency Braking
ESC – Electronic Stability Control – prevents over steering
SAE – Safe Exit Assist – prevents kids from opening a car door in a dangerous situation
LDW – Lane Departure Warning – makes a sound, sometimes wheel vibrates
ACC – Adaptive Cruise Control – Cameras adjust the speed, so you maintain a cushion between your car and the car traveling in front of you
Curtain Airbags – provide protection during a side impact
Thorax Airbags – protects your head in a side impact accident.
Antilock Braking – reduces skidding when the driver over brakes.
LKA – Lane Keeping Assistant – corrective steering is done
ISA – Intelligent Speed Assist – alerts the driver when they are speeding
Tire Pressure Monitor
AH – Adaptive Headlights – headlights turn as the vehicle does to increase sight at night
CAEB – City Automatic Emergency Braking – the same as AEB, but the sensing is adjusted to slower speeds found in city driving conditions
PD – Pedestrian Detection – detects pedestrians, sometimes bikes and produces a warning, and in some vehicles braking to avoid an accident
Heads Up Display – provides information to the driver via a projected image onto the bottom of the windshield.
Passenger Knee Bag – Cushion’s the passenger’s lower body during impact.
RCTW – Rear Cross Traffic Warning – notification of a vehicle outside the rear camera
FCW – Forward Collision Warning – lets you know when you’re getting too close to the car in front of you.
AEB – Automatic Emergency Braking – brakes are deployed to avoid a collision
BSW – Blind Spot Warning – lets you know if there’s a vehicle in your blind spot, and some systems check your blind spot when you activate your left turn blinker.
LCA – Lane Centering Assistant – assists your steering to maintain your driving lane
DAD – Driver Attention Detection = Facial Recognition Software – it’s not here yet, but it recognizes if a driver is distracted or falling asleep
Entire publications have been built around providing vehicle reliability information, so I certainly couldn’t offer a complete post without addressing this topic.
From a tree-top perspective, cars today offer a level of reliability that exceeds anything we’ve ever seen.
Gone are the days of car manufacturers building cars that begin to fall apart around 80,000 miles. Today, if you maintain a vehicle doubling that mileage is undoubtedly attainable!
But, it is a good idea to research the vehicle reliability rating for a vehicle before purchasing it, you can not ever have too much useful information!
Obviously, the internet is the best source to compile this information, and you might have arrived on this page while doing this research!
When folks ask me were to look up this information, I provide two sources, one from the US and the other from the UK:
On both sites, you can check reliability ratings by the manufacturer and by the specific model I like to compare and contrast between an American site and a UK site.
Keep in mind, JD Power gives out a lot of awards within the Automotive industry. The auto industry is much like some youth sports, everyone gets a trophy!
As you undoubtedly know, the auto industry loves to brag about winning a JD Power award. And, to be completely honest, this makes me a little uncomfortable. By no means am I inferring that their company or their awards are not valid. But, it’s certainly not unheard of for a company to form biases and pre-formed opinions when they are close to others within their industry. That’s just human nature!
That’s why I like to review at least two sources!
Here’s a snapshot of a reliability index rating:
Comfort Elements to Consider When Buying a Car
One of the most critical elements of a test drive is determining if you’re going to be comfortable in your next vehicle. Today, there’s a real concerted effort to make both the drivers and their passengers comfortable in the car. But, it’s not critical that the car is comfortable for most people, it’s vital that it’s comfortable for you!
When taking the test drive, be sure you’re both comfortable in the seat, and you’ve got good sight lines. Sit in the passenger seat, and the back seats too!
Your safety is tied to your comfort, so be sure to check how the seat adjusts, and that you’re able to see well, you’ve got enough headroom, and you would be able to sit comfortably for hours behind the wheel.
In addition to the seating, there’s a whole host of features car come with all designed to make the driving experience more pleasant! Here’s some to consider:
Climate Control – multizone
Heated Seats and Steering wheels
Auto Dimming Mirrors
Lumbar support – height adjustable lumbar support in a power seat really provides you with a lot of comforts!
Wireless charging pad, so you can just drop your phone on the pad, and it’s going to start charging
Automatic Headlight Beams – turns the headlights on high when there’s no traffic coming
Smartphone apps and compatibility – Apple Car Play and Android Auto they are bridging the gap between the car’s information and entertainment elements and our phones
Costs Associated with Driving and Maintaining the Car
This portion of the article is where many people stop!
You like the car, it drives well, you’re able to afford it, time to sign the papers!!
Not so fast!
The cost of buying a car also includes the costs to maintain the vehicle, which is an asset of your, and the impact of using this asset!
Let’s start with the topic of depreciation. New cars lose 8 to 11% on average the moment you drive off the lot. This is an unavoidable cost associated with a new car. It doesn’t mean buying a new car is always a bad idea, but it is a cost, and you need to consider all costs when making a large purchase like a car!
You may have already known that a new car depreciates when it’s purchased, but all vehicle depreciates over time and miles. In some situations, cars can become ‘classics’ over time, and they could accrue value, but that’s the exception!
So, even if you’re buying a used car, it’s going to depreciate, and it’s essential to get an idea of what this is going to be over time.
If you’re shopping for a new car, Edmunds has a 5-year cost of ownership calculator that’s quite interesting. This factors in depreciation, taxes, maintenance, etc. Here’s where you’ll find this page: https://www.edmunds.com/tco.html
Not to be outdone, Kelley Blue Book has a very similar calculator: https://www.kbb.com/new-cars/total-cost-of-ownership/. It’s smart to gather the information from both sites and compare!
To check a car’s depreciation, and other vital features I really like a free service offered by this website: iseecars.com
Select the Vin LookUp feature and put the Vin Number of the car you’re considering. The report that’s generated will provide you with pricing information if it’s a used car where it’s been listed, depreciation estimates, and more.
You’ll see depreciation calculations for this car, and similar vehicles made by other manufacturers. So, if you see a car that holds it’s value better than the one you’re considering, maybe you need to check out the car that’s going to be worth more down the road!
This is an excellent source of free information, be sure to use it!
Maintenance is something every car needs, but the cost of maintaining cars can vary significantly from one vehicle to the other. The good news, today’s cars require much less maintenance than previous vehicles.
Some of the regular maintenance today’s cars need:
Oil and Filter Changes – these are not needed nearly as frequently as earlier vehicles, but the cost of this service has skyrocketed… go figure! Most cars today can go 6,000 miles or more between services. You should check the cost before settling on a car.
Additionally, outside of windshield fluid, anything that’s got fluid needs some serving!
Things also wear out, including almost every component of a car! Tires are a prominent part that can wear out, and how you drive, and how far you drive determines the actual life of a car’s tire. Today, tires are costly, especially, run-flat tires, so factor this expense into the equation!
Brakes are another part that wears out, and it’s critical that they’re replaced when needed! For the average car, brakes need servicing or replacing sometime after 30,000 miles, and again, this will depend on how you drive.
Of course, this is not a complete list of maintenance costs, and there’s lots of hoses, belts, plugs, that all will need to be replaced. Consumer Reports will often have information about a car manufacturer’s maintenance costs, and you can probably gather some information by searching their website.