Buying a car in cash is a great goal. If you save up to buy a car in cash, you avoid spending money on interest, and you save yourself the headache of incorporating another monthly payment into your budget. But while buying a car in cash is often the recommended approach, it’s important to note that this method can take time. That means it might not be feasible if you need a car now. 

You might need a car now because you’ve started a new job and need a car for commuting purposes. Or maybe you need a car to help you take care of kids or other family members. No matter the case, our access to cash doesn’t always align with our needs (or wants), and in cases where a car has an impact on your livelihood, it might make the most sense to consider financing. 

If you’re thinking about financing a car, here are some things to keep in mind as you search: 

Reduce the debt you take on by financing as little as possible 

The loan industry is complicated, and car dealerships and banks can make it sound really simple by boiling down loan terms into a single monthly payment. That can be misleading. The thing to remember is that the folks that hold your loan are making money off of your loan, and the bigger the loan, the more they make.

Your goal should be to finance as little as possible so you can minimize the debt you owe. Not only does that help save you money, the smaller monthly payment amount will be more manageable, decreasing the likelihood of missing a payment or defaulting on the loan.

By financing as little as possible, you also maximize your net total (your cash minus any debts you owe). That means more of that income will stay in your pocket rather than going towards paying off a loan.

Finally, don’t forget to shop around if you’re not happy with the terms you’re offered, or if you’re just not sure what kind of offers are out there. Dealerships may want you to think they’re the best and only game in town, but banks and credit unions also offer car loans. So check around and see if you can find an offer that works best for your budget and goals. 

Find a car that meets your needs

It’s nice to be able to get all of the cool bells and whistles that we want when buying a car. But more features means more cost, and you might find the car that has everything you want is a bit out of your budget. Because of that, it’s helpful to be aware of your specific vehicle-related needs so you can prioritize while you’re shopping.

A good place to start is by considering where you’ll need to go, how often you’ll need to go there, and who will be in the car with you. 

Where? 

Just planning to take the car to and from your job in the city? Then you might get by with a smaller, less expensive car. A smaller car would not only cost less, but you might also have less trouble finding parking in a congested area. 

But, if your ‘where’ includes driving up snowy mountains or off-roading, then you might consider a heavier-duty vehicle with four-wheel drive. 

How often?

Maybe you need a car for weekly or monthly work trips. Or maybe you need a car to help you care for friends and family on a daily basis. In either case, thinking about how often you plan to use the car will help you know just how much you should extend yourself when it comes to nonessential features, which do have an impact on price. 

For example, if you plan to use your car mostly for driving to and from work, but think an added feature might be nice for your annual family road trip, it might make more sense to forgo that feature and find a vehicle that’s a little simpler. That way, you’re not paying additional costs for features that might only be used once or twice a year.

Who?

Who’s in the car with you will impact the size of the car you need. Again, if you’re the only one being toted around, then a smaller car makes sense. On the other hand, if you need to transport multiple family members in one go, then you might need something a little larger.

Remember to plan for ongoing costs

This isn’t necessarily part of financing, but it’s important to take into account the ongoing costs of owning a car when considering your budget and how much car you can afford. Many of these costs are expected, while some are not. But you can still plan for them. 

For example, while we hope you don’t have any surprises soon after buying a car, the reality is cars (both new and used) break down. So you might find yourself on the hook for repairs while still paying down your car loan. And you can definitely count on having to purchase car insurance as well as paying for frequent visits to the gas pump. 

Be sure to take all of these things into consideration so that your budget isn’t stretched too tight once you get the loan.

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This might seem like a lot, and it is! But by putting in the work now, you’ll have much more peace of mind that you’ll be able to consistently make your monthly payments while still being able to meet your other needs. 

And once you’ve got your car loan in place, don’t forget to track your debt’s payoff progress using Debt Accounts in Goodbudget. And if you’re in a position to pay off your loan faster, consider the debt snowball method.