Budget to Purchase a New Car - Essay Example

In deciding the amount to borrow from the bank, I had to consider many factors including what I could afford. I considered various factors, including my family expenditure every month. Finally, I came to the conclusion that I could afford to purchase a Honda CR-V within a period of sixteen months.

I borrowed a loan from one of the banks in our country. I made this decision with consideration of the costs and interest payments. I also considered down payments, trade-in allowances, and other debts.

This was not the only payment I had to make, thus I allocated an affordable amount to this budget. I had some rent, insurance, and taxes that needed to be paid every month. I, therefore, had to limit my debt payments to less than 45% of my monthly gross income.

My entire household earns $5,000 in terms of gross wages every month.  24% of this amount was spent on rent. This is approximately $1,200. After paying this, only $ 2,550 remains. I still needed money for insurance, groceries, fuel, and other household expenses. I decided to budget 20% of my total earnings for the purchase of the car. This meant that I had to set aside $ 1,000 for the purchase of the car. The car is one that I can finance for not more than $2,000 per month. I could not spend more than this amount on the car since I needed to cater to all the other needs. I have a family to provide for alongside all other requirements in life. The amount that was hereby allocated to car payments included insurance and registration fees.

The car selected is a front-wheel drive and costs approximately $31,600. I chose this car since it was affordable for me then. The car also favored my taste and preference. A front-wheel-drive car is cheaper than a four-wheel drive. I had to borrow $32,000 from the bank. This was the lowest amount possible depending on the situation at hand.

 Conclusion

 In making this decision, I considered all factors, including the total payment, loan term, and interest rate. I tried to make the initial borrowed amount as low as possible so as to ensure easy and timely payments to the bank.  The payment term was also ensured to be as shortest as possible in order to ensure the minimum possible total payment made. Short-term payment ensures saving (Dickinson, Duo). This deal is directly tied to my affordable monthly budget. It is true that I had considered my maximum allowances before starting the car search. Earlier consideration of my economic status assisted me in formulating a budget that was realistic and achievable.