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For many Filipinos, buying their first car represents a significant upgrade in their lifestyle. Owning a vehicle means they have the ability to travel wherever and the choice to skip the often-miserable experience of using public transportation. This comes at a price though, as purchasing and owning a vehicle can cause a significant strain on one’s personal funds. 

Financial capability is a primary concern for many of those who are thinking of buying a car for the first time. If you’re looking for a vehicle, how much can you really afford? Also, how certain are you that your auto payments won’t compromise your monthly budget? In a country where cars are still seen as a status symbol, it’s important to answer these questions to ensure that you’re making a responsible and financially sound choice. Below, we offer a few tips that can help you gauge your capacity to pay for a new car. 

Do the math first

There are a few guidelines that you should keep in mind when canvasing your car options. Some financial experts suggest abiding by the 20/4/10 ratio. You should be able to put down a 20 percent initial payment for the car that you’re planning to buy, which is what most car dealerships ask for anyway. Then, you should be able to pay for the car in full in 4 years’ time using 10 percent of your gross income. Allotting this percent of your gross income to your car payments gives you enough room to save for an emergency fund or to pay for a mortgage without compromising your current lifestyle. 

If you’re willing to take a bit more risk, though, you can push your car payments to take up to 40 percent of your monthly income. This may force you to give up some of life’s little pleasures like your daily milk tea or going on weekend holidays, but these small sacrifices can go a long way in making sure that your car loan is paid in full by the end of its term.

You can use the amount of monthly amortization that you can afford as a guide for determining the ideal price range of your vehicle. If, for example, you can comfortably part ways with PHP 20,000 per month for the next 4 years, plus you’ve already saved PHP 240,000 for the 20 percent down payment, then you can probably go with a crossover SUV that’s worth PHP 1.2 million in total. 

Keep depreciation in mind

Before buying a vehicle, decide first if you’re going to keep it or if you’ll be selling it to fund your next vehicle purchase. If the car’s a keeper, then you don’t have to think much about depreciation because you’re probably going to use the car for as long as it’s still road worthy. Never mind that a daily driver can lose around 10 percent of its value as soon as you drive away from the dealership. In a year’s time, the vehicle’s value can drop down by 20 percent. If your car loan has a term of 5 years, then the vehicle’s value would have decreased by 60 percent by the time it’s fully paid.

If you’re planning on selling the car in the future, however, you need to be more careful about choosing the brand and model of the vehicle, as the rate of depreciation can vary depending on these factors. Some brands can be sold at a favorable price even after years of use, and you’ll have a better chance of getting your money back if you go with these reputable vehicle brands. 

Factor in the cost of ownership

Transitioning from an everyday commuter to a car owner is a big change. Owning a car has plenty of benefits, but at the same time, it also comes with its own set of responsibilities, including added expenses. 

Aside from thinking of the price of the car itself, it’s also an important consideration to see if you’re ready to shoulder fuel, parking fees, insurance premiums, and regular maintenance services for your vehicle. You’ll need to include these expenses in your monthly budget, plus you also have to set aside funds to cover any unexpected repairs and damages. 

Buying a car is a big decision that requires a lot of thought. Before setting your sights on a particular model or deciding on your non-negotiables for your vehicle, consider first if you have the long-term capability to pay for this new property and to keep it in tiptop condition. Preparing yourself and your finances properly means that you’ll fully enjoy the benefits and conveniences of owning a car. At the same time, it’s also a solid step in making sure that making on-time payments for your vehicle won’t be a cause of considerable stress in the future.