To buy a good car, you have to take into consideration what car suits you and perfectly fit into your budget. It’s quite easy to make that decision, and they are really good ones. However, you will have more confidence in knowing the price of the car you can afford.
The first factor to consider in buying a car is how much you can afford to spend on your new asset after including it her auto-related expenses such as maintenance, gas, and insurance.
Also, you have to into account your monthly expenses including utility bills, rent, mortgage, feeding, and others. After that, you can assess the potential amount of loan affordable to you using the loan calculator.
According to Consumer Reports, the old rule of 20/4/10 which implies 20% down payment, 4 years loan plan, and 10% of total income allotted to the loan may now be rendered obsolete. This is because of the increase in average car prices and payment coupled with a longer loan repayment plan to hold down payment.
While having an extension on loan term may decrease the monthly repayment, it is good to note that it may incur higher interest compared to loans with shorter duration. The upside on a car loan is also inevitable with extremely long repayment time; this is a condition where the vehicle’s worth is lower than the amount owed.
The question of how much should be paid as a down payment is prevalent among loan consumers. While 20% is considered to be ideal, between 10-12 will suffice for both new and used cars dated to the year 2015.
To boost your down payment amount, you can trade in your old vehicle or sell it privately. In some instances where the borrower still owes on the car they are trading in, it could lead to negative equity which is a critical factor to take into account.
Additional charges to consider
Sales tax, registration and add-on fees such as keyless entry or a service contract, title fees will increase the total expenses on the vehicle you intend to purchase. It is therefore advisable to take all these factors into account while stating your loan amount.
Ways to trim down car expenses
In the case where your loan estimate can’t cover all your budget, these tips will help you cut down your cost;
- Buy a less expensive car
- Improve your credit score
- Save up for a larger down payment
- Get minimum add-on
Credit score plays a critical role in securing an auto loan. Borrowers with a better credit score are more positioned to obtain loan approval faster. Good habits like paying bills as at the due time, borrowing what you can afford to repay and utility bills payment can help improve credit history.
Getting your loan pre-approved can give you more confidence with online lenders as you are already familiar with the price of the car you want to purchase and the amount of loan available to you.
It is tempting to dabble into vehicle purchase carelessly, but strategic planning on getting the best deal and loan repayment plan will save you a lot of future trouble and give you peace of mind especially if you are a college student or military veteran!