Buying Yourself a Gift you can Barely Afford

Some of the biggest decisions a consumer makes are whether to buy a car or a home. While purchasing a home may be considered a financial luxury, most agree that purchasing a reliable car is a financial need. Sometimes that need comes at an inopportune time when money is tight, so it is important that consumers in this situation make smart choices that consider the future. Because most who find themselves needing to buy a car they can barely afford are doing so to replace an older and less reliable mode of transportation, there are a few important things to consider.

Cons

Financial Strain
Obviously, consumers should have a plan in place to address the additional financial burden a new car will bring. Buying a new or new-to-you car does not only mean an increase in car payments. Instead, consumers often end up shelling out more in car insurance or gas money, too. Consumers must be sure to factor in these additional costs when settling on a price point for the purchase.

New Car Uncertainty
Consumers making large purchases like new or used vehicles often second-guess their decision. People want to know that the amount of money that are spending is going to be worth it, and that the car they are buying will be reliable and will last a long time. The problem is that there are few guarantees when buying cars, so consumers should be sure to have the car checked out by a trusted mechanic for some peace of mind. Websites like Kelley Blue Book and Consumer Reports also provide reviews and reliability ratings for new and used cars and are a great resource for consumers looking to begin narrowing their options.

Pros

Better Car
Most consumers considering a car purchase are doing so from the perspective of needing reliable transportation. Maybe they can see the writing on the wall for their current car, or they have already been pouring cash into a money pit that will continue breaking down. Some consumers want to switch to a car from less reliable or convenient methods to transportation like busses, biking or oft-delayed trains. Weighing the car purchase in terms of both financial cost and the cost of lost time can help to determine if it is really in your best interest to purchase when money is tight. Sometimes, the gift of peace of mind and convenience of reliable transportation outweighs the additional expenses.

Credit Building
Purchasing a car and making on-time payments is one way to build credit since a person’s credit score is mainly predicated on paying bills on time. Of course, there are also easier ways to build credit. For example the benefits of raising your credit limit include credit building, and it is much easier and less expensive than buying a car.

Overall, consumers should err on the side of caution and make a purchase only if they are confident that the benefits outweigh the risks. Because financial strain and buying more car than you can afford will only lead to problems later on, creating a realistic budget and using reviews from trusted sources in your decision can ensure you make the smartest choice.

Anum

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.

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