It’s the dream of many to buy a luxurious car. There’s just something about driving around in a Rolls Royce or Lamborghini that makes you feel like a million bucks. However, before you go out and purchase your dream car, there are some financial mistakes you need to avoid. If you can avoid these mistakes, you won’t need to refinance your mortgage later. This blog post will explain some of the most common financial slips most people make when buying a luxury car.
Not Using the 20/4/10 Rule of Thumb
The 20/4/10 rule of thumb is a great guideline when buying any car. This rule states that you should put down at least 20% of the total cost of the car, finance for no more than 4 years, and not have payments exceed 10% of your monthly income. You could be in trouble financially if you don’t follow this rule. Not only will you have to pay a lot more in interest over the life of the loan, but you may also end up defaulting on the loan due to having payments that are too high for your income.
Ignoring the Depreciation Rates
Depreciation is one of the most significant financial risks when buying a luxury car. Luxury cars depreciate much faster than economy cars, meaning you can lose a considerable amount of money if you don’t pay attention to the depreciation rates. Before you buy, research the average depreciation rate for your desired model and factor this into your decision-making. Many people forget to factor this in and end up with a car that loses value much faster than anticipated.
Not Accounting for Extra Costs
When buying a luxury car, there are often extra costs associated with ownership. Things like maintenance, taxes, and insurance can add up quickly if you’re not careful. Before deciding to buy a luxury car, make sure you factor in all of the additional expenses that come with owning one. Doing so will help ensure that unexpected costs down the road won’t catch you off guard.
Sealing the Deal for a Five-Year-More Loan Term
Sealing the deal for a five-year or even longer loan term can be tempting when you’re buying a luxurious car. After all, it means lower monthly payments and more time to enjoy your new ride. However, this is rarely a wise move financially. Longer loan terms mean higher interest rates and often come with “balloon payments” at the end of the loan period. If you can’t make that balloon payment, you might find yourself in a very difficult financial situation.
By understanding and avoiding these common financial mistakes when purchasing a luxurious car, you’ll be better prepared to make an informed decision that won’t leave you struggling financially down the road. Do your research, understand the depreciation rates, and follow the 20/4/10 rule of thumb to ensure that you’re in a good financial position when buying your dream car.