Its been over 3 years since we moved to Australia and like most immigrants with limited means and local knowledge from friends and colleagues we bought a used Toyota Corolla Model 2010. I was lucky to find it on Gumtree which had a complete service history also got an online car history record.
Fast forward to 2021 its time for a new car but we were in middle of pandemic. We again settled for reliable Toyota brand but we had a few key decisions to make
- Which type of car to buy ? A completely personal preference, but in my case there was no debate the family announced we need to buy a SUV, to be true somewhere inside me it fulfilled my quiet ego and to do our bit towards a greener tomorrow we got a hybrid !! In 2-3 years all major car manufacturers are moving to all electric / hybrid models in future.
- Whats my budget should be and how did I calculate this ? – In layman’s term how expensive can I buy without sacrificing my current lifestyle and financial commitments, for this I followed the 20/4/10 rule of thumb. Down payment – 20% of cost of vehicle, Tenure of Loan 4 yrs and monthly repayments, insurance service costs should not be more than 10% of my monthly income.
- How to structure finance and repayments, So if you are at this stage you have already made the key decisions on which car you would buy, hopefully its a unanimous family decision. (I am assuming you have spent a few weekends going for family test drives). You loan structure will depend on you monthly income and expenses, they may also take into account if you are a property owner or renting and may also ask if you have any other on-going repayments.
Learning I had in this journey !!
- Unless you are the only person who is going to use and drive the vehicle try to make a general consensus in the family shortlist 2-3 vehicles and then narrow down the final verdict. An inclusive decision does create a sense of ownership.
- Always negotiate but do not sound rude, both parties are trying to seal a deal. You may also try to get a competitive quote to spice up the conversation. But in this pandemic there are hardly any vehicles on stock.
- Even if you are going for an inhouse finance which may sound a better deal with some benefits you can still negotiate, their is always a room for a better rate. In my case the finance person did tell me that if you can get me a better quote he can try to match it or do one better. Eventually he was not able to beat quote, did took some time but it was some good learning in the end and a few hundred dollar saved.
- Most finance structures will have a balloon payment clause at the end of the tenure, this is nothing but the left over to be paid in lumpsum. to make the monthly payments more manageable. This is where following the 20/4/10 helps to keep things in check.
- Start a goal saving accounts for the balloon payments. In my case I started a goal saving of $500/month which would help me cover my balloon payments cost at the end of my repayment period. You may also invest this into market instruments which will eventually give a higher returns than your savings account.
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