Common Mistake : High Car Payments

If your car payment is extremely high, you’re diverting money from your other goals. Here’s how it affects your financial situation:

• You have less money to pay off student loans or your credit cards.
• You’re likely to pay higher insurance premiums on a more expensive car.
• You have less money to invest or to pursue other goals, such as buying a home.

Even if you get a high-paying job, your paycheck only goes so far. You need to set priorities and decide how much of your budget should go toward a car payment.

When you go car shopping, watch out for high-pressure sales tactics. If the salesperson pushes too hard, you may want to go elsewhere to buy your car.

Tip: Research the Dealer

Check out the Better Business Bureau, the Internet, and other sources for information on the dealer’s reputation for doing right by its customers. In addition to friends, relatives, and fellow students, ask around town for opinions on which dealership provides good deals and service.

Tip: Rent a Car

When you go on a long trip, the cost of gas isn’t your only expense. Your car depreciates further with each mile you drive. You may find that if you consider depreciation, it’s actually less expensive to rent a car with unlimited mileage.

Furthermore, if you live in a large city like New York or Washington D.C., you may find that the costs of insurance and vehicle storage can be extremely high. Adding those factors to the other costs of owning and maintaining a car, you may find that renting a car as needed for weekend trips is actually cheaper than owning a vehicle.

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