You Have More Income Than Before

If your net worth has grown since you bought your current car, you might find yourself interested in nicer, more luxurious options. Maybe you’re craving a car with driving technologies, like blind spot warning, or other special features.

To figure out how much more you can afford for transportation, make a detailed budget that includes everything you’re spending on, like housing, utilities, groceries, shopping, entertainment and more. Crunch the numbers carefully to determine the max you can afford for transportation. When evaluating the price of a car, don’t base your decision on the monthly car payment alone, because the majority of the real cost is in the interest rate.

And don’t forget to take into account not just the purchase price but also incidentals like gas, insurance and parking. This will help guide your decision-making on whether you can afford the beautiful new car you’ve been pining for.

Also, before signing any paperwork, do your due diligence on what kind of credit score you might need to qualify for any great rates you’re offered. Sometimes, people will receive a quote, fill out all of the forms and drive away with the car before knowing for sure that they received the stellar rate they thought they had—only to get a call telling them they didn’t qualify, and that the payment will actually be significantly more each month.

You Need to Tighten Your Belt

Now for the reverse scenario: Maybe your financial situation has changed and you’re brainstorming ways to cut back on some of your expenses. Although it may seem intuitive that trading in a more expensive car for a cheaper one could help you save money, that’s not always the case.

First of all, if you’ve owned your vehicle for a couple years only and you’re not done paying it off, selling it now could have negative financial consequences. Plus, although you’d save in the short term by trading a more expensive gas-guzzler for a less expensive fuel-efficient model, you’d probably lose more on the new car’s depreciation than you would save on gas.

One way to rig the equation in your favor is to shop around for used cars instead of new ones. Since they’ve already been owned, they won’t depreciate as drastically as brand new cars. And buying used doesn’t mean you can’t get a car that you’ll love.

Maintaining Your Old Car Is Costing Too Much

When it comes to the actual cost of having a car, there’s a lot more to consider than the purchase price. How much is auto insurance? Taxes? Tags or license plate renewal? Fuel? Tolls? Parking? Then there’s the whole question of maintenance, ranging from regular expenses like oil changes and tire rotations to pricier burdens like incessant repairs on an older vehicle. Plus the cost of renting a car (or the nuisance of bumming rides) can add up fast if you need to leave your car in the shop overnight.

Even if you do follow the top tips for car maintenance, you might still find yourself shelling out to fix this or that a bit too often. In that case, it might make financial sense to consider a new vehicle, whether it’s literally new or just new-to-you, that will require less maintenance than your current car. If you’re not sure whether you’re spending too much, a common rule of thumb says that you should aim to keep your total car expenses to less than 20% of your income.

When choosing an alternative you’re hoping will cost less to maintain, take a look at the repair record of each particular make and model. Pay attention to problems with transmissions, brakes or electrical systems, and what it tends to cost for routine repairs.

You Want to Buy Your Vehicle When the Lease Expires

Buying a used car and driving it into the ground will maximize your dollars to the utmost, but if you care about having the newest, most up-to-date ride, a lease might make more sense because you’re locked into your particular car for three years only. After that, you’re free to upgrade without worrying about whether the car you bought is fully paid off. When your lease expires, you generally have the option to buy the vehicle you’ve been driving around for the past three years. But should you?

Reasons you might want to keep leasing:

• You don’t actually want to own the car you’ve been driving.
• You might enjoy the maintenance-free lifestyle of leasing, especially if you’re nearing retirement age. Leasing keeps payments down and lets you move from car to car without much fuss.
• You’re skittish about long-term financial obligations like a big down payment or a car loan.

Reasons you might want to buy your car at the end of the lease:

• The buyout price is a good bargain. How do you know? Back when you signed the lease, you agreed to the car’s “residual value,” a predetermined estimate of how much it’ll be worth at the end of the lease. As a rule of thumb, if your residual value is less than the going estimate for the same car (a good place to check that is Kelly Blue Book), the buyout is probably a good deal. If it’s higher than that estimate, then the car is probably less than a steal.
• You love your current car and don’t want to gamble with whether you’ll like the next one as much.

If you do want to buy your leased car, try to keep your enthusiasm at bay and let your leasing company contact you first. This will help when it’s time to negotiate the price. Generally, buying the car will involve paying the residual value plus a fee (called a purchase-option fee) of a few hundred bucks.

Whatever your situation, the most important thing to remember when considering a new ride is that you want the car that makes the most sense for you, your lifestyle and your financial situation. Wheels up!