In Chinese proverb, there is a quote says “一种米养百种人 (Yī zhǒng mǐ yǎng bǎi zhǒng rén)”, which literally means one kind of rice will raise a hundred kinds of people. It takes all sorts to make a world. When come to the discussion to buy a new car or a used car, many people has different thoughts and often these thoughts are controversial. Some people prefer to buy pricey cars that higher than what they can actually afford, while some people prefer least expensive but just a small car that would take them to wherever they want to go.

Here is the three questions to ask yourself when buying a new car or used car. It may not be the top advice but it will serve as good tips for anyone who is in dilemma of buying a car especially first time car buyer.

1. How much can you really afford?

Calculate the monthly car payment PROPERLY. The calculation has to include the yearly car insurance cost as well as car maintenance cost. If the total cost for car insurance and car maintenance are $2,400 a year, you will have to add $2,400/12 = $200 dollars into the monthly car payment. Don’t fall in the great deals trap if that is over what you can afford or over your budget. Averagely, American pays around 11% of the monthly gross income on a car payment which is consider a little high for most people. You should keep it as low as it could be if you have other debt like home loan. In some countries in Asia likeMalaysia,Thailand, orIndonesia, many people serve their car loan up to 9 years and what makes it scary is the car loan mostly taken up 1/3 of the monthly gross income due to the tax on import cars. Therefore, keep an eye on your budget while considering the new ride. If your monthly income is $4,000, the car payment ideally should be in between $320 to $400.

2. What is the loan rate?

Car loan rate play an important role throughout the loan period. Higher rate makes you pay more every month and need longer time to pay off the loan. Keep in mind that car dealer is not the only place you can get car loan, banks, creditors, and many other alternatives are offering car loan. All you need to do is search around for the best interest rates before negotiating with the dealer. The lowest is always the better.

3. What is the best car for you?

Now you have roughly known how much you can afford every month, you should find out what is the best car for you. Search properly which cars you are affordable. Don’t be swayed by low sticker prices, consider also the depreciation. Here is how you do the mathematics. Let’s say both of the cars have the same interest rate.

• Car A: sticker price $13,000, monthly car payment is $400 with 3 years car loan term.
• Car B: sticker price $17,000, monthly car payment is $400 with 4 years car loan term.

Now you should consider about the depreciation and the cost of ownership over the years. Sometimes less-expensive cars can cost more over time. If the cost of driving the Car A is $800 a year and Car B Is $300 a year, you should go for Car B. Both cars are with the same monthly car payment that still under your budget. The only different is just the car loan term. See also best gas mileage cars.

When we advice people not to buy a new car that are too pricey, some of them replied “You have to get a luxury car to motivate yourself to make more money. Drive the car you want to drive but not buy what you can afford.” Well, this may be another kind of theory to buy a new car. Life wouldn’t be worth living without mystery, isn’t?