Buying tips: What is the best budget for getting used cars?

If you’ve been a frequent reader of Philkotse.com, you would know that we have emphasized repeatedly that owning a car in the Philippines is one of the ways to stay away from commuting hassles. Yes, not everyone can afford a brand-new car, but a lot of pre-owned vehicles are already available in the market.

The industry is growing and will continue to grow; in fact, there are already certified car dealerships specializing in selling used cars. These cars come in different price ranges and may overwhelm a first-time buyer. To narrow down your search, you should set the best-used car budget, and that is exactly what we are going to teach you today.

How much you should spend on a car?

1. Things to consider while setting a budget

Before you think of how to set up the right budget for a second-hand vehicle, there are things you need to consider such as:

1. Disposable income

When we say “disposable income”, it is the amount remaining from your monthly income after paying your regular obligations such as bills and food. This does not mean though that every penny remaining is disposable.

You must also make sure you have an emergency fund and you’re not deprived of simple pleasures like buying a pair of jeans and having coffee with your friends once in a while.

Calculate how much is your available disposable income

>>> Read more: How to get a car history check before buying a car.

2. Cost of vehicle ownership

Owning a car is like having a child; you need to take care of it. Not only because you invested money on it but also because the car requires regular maintenance such as oil changes, fan belt replacement, and Freon refills. That is especially since you will be buying and driving a pre-owned unit.

As such, you should keep in mind that you must also have an allotted budget for its regular maintenance. Most procedures require an expert’s skill and purchase of materials. Nonetheless, most of them need not be done monthly; usually annually, bi-annually, or every two or three years.

Another cost you need to be ready with when you own a car is a parking fee. Though this is minimal, when you sum it up, it is not as minimal as you thought initially.

3. Purchasing cost

The price tag on used autos for sale is not just what you need to worry about since there are other expenses you need to be prepared with when buying a unit. One is the transfer of ownership unless this will be shouldered by the seller. You also have car registration, taxes, and insurance fees.

One is the transfer of ownership unless this will be shouldered by the seller

>>> Check out: Used car buying tips: How much should I pay for a used car?

2. Setting the best budget for used cars

Now that you already have an idea of what to consider before you set up your budget, here are some of the intelligent and recommended ways to develop your used car budget:

1. The 10-20 rule

This rule has long been recommended by financial experts and advisors for years. The 10 means you should allocate 10% of your monthly income for the monthly amortization of your car. In case you will choose to get a second-hand vehicle, you need to have a loan to pay for the unit. Might sound too low for some, but it is a great way to make sure you don’t end up putting yourself in a situation where your family or yourself be deprived of your needs.

On the other hand, 20 represents 20% of your annual income. This can be used as the total amount you can spend to pay for the unit, in cold cash. If this seems to be a meager amount or an amount that can’t pay for a decent used car, go for financing and consider the 20% as your down payment.

There are some of the intelligent and recommended ways to develop your used car budget

Nonetheless, if your purpose for owning a car is just to drive from point A to point B regularly, like to and from work and home, then an affordable but still safe and usable unit amounting to 20% of your annual salary would be enough.

2. The 20/4/10 rule

This is a rule intended for those who plan to have the unit financed. As mentioned above, 20% is for your down payment and 10% is for your monthly amortization.

The digit four is the maximum number of years recommended for you to have your car financed. That is because the value of the car will depreciate and of course, it may no longer be that reliable after four years. You don’t want to be paying for a unit that you are no longer using, right?

3. The 36% rule

Some of you might have other credits such as housing loans and credit card installment payments. Adding a car loan might no longer be feasible; thus, the 36% rule is something you should consider.

Consider all other loans and credits

With this, you should make sure that all your credits and loans should only cover at most 36% of your monthly income. To arrive at the best monthly amortization for your car, you need to list down all your credits and the amount you pay for each. Sum them up and then deduct it from 36% of your income. The remaining amount will be the recommended monthly amortization for your used car.

>>> Grasp your attention: New cars vs. used cars or pre-owned cars: Which one to buy?

3. Be a wise buyer by allocating the right second-hand car budget

Nowadays, owning a car is no longer just a luxury, especially since commuting in the Philippines is becoming more and more difficult and stressful. It even takes up most of your time, making you feel more tired and limiting your “me” and family time.

Pre-owned vehicles are great since they are affordable and most of them are still reliable or in good condition

Pre-owned vehicles are great since they are affordable and most of them are still reliable or in good condition. Additionally, you can have them financed by a private company or the bank of your choice. 

However, before making a decision, you have to make sure you have set the best-used car budget. This way, you won’t be in debt and deprived of your basic needs while enjoying the convenience of traveling with your private vehicle.