How Much Car Can You Afford?
You’re ready for a new set of wheels. But are you ready for the auto loan that will likely come with it? Here are a few ideas to help you determine how much you can afford before you buy your next car:
Look at Your Budget
Before you make any large purchase, it’s usually a good idea to review your current budget to find out how much money you’re spending each month for regular expenses (rent, utilities, groceries, etc.) and how much you have left over. Then decide how much of what’s left over you’d be comfortable spending on a car payment. Remember to consider how much money you’ve saved for a down payment. The more money you put down when you buy the car, the lower your monthly payments will be.
Consider Used vs. New
New cars lose a significant amount of value within just the first few years of ownership. Instead of buying new, consider buying a gently used car for less than what you’d pay for a brand new one. The lower purchase price could save you a bundle on your car payment each month. If you’re worried about buying a previously owned vehicle, look for one that has a warranty similar to what you’d get if you were buying new.
Shop Around for Your Loan
You wouldn’t buy a car without shopping around to find out what different dealers are offering. The same principle applies to your car loan; it’s in your best interest to shop around for the best deal. The interest rate on your loan will have a big impact on the affordability of your monthly payments, so you’ll want to try to find the lowest rate possible.
But be aware that when you’re auto loan shopping, lenders may pull your credit reports, which will trigger a hard inquiry and typically lower your credit scores by a few points. To minimize the impact loan shopping has on your scores, get quotes from several lenders within a short amount of time. Multiple inquiries made within a few days of each other will show on your credit reports as a single inquiry.
Stay on Top of Your Payments
Most auto loan providers report your payments to the three major credit bureaus each month. If you don’t make your payments or if you pay late, it will show up on your credit reports and could negatively impact your credit scores. In addition, if you get far enough behind on your payments, the loan company may repossess your vehicle. It’s important to think carefully about how much you can afford before you make your purchase.
Are you considering a new car? Our auto loan calculators can show you what your payments will be based on the purchase price of your vehicle, the size of your down payment and the interest rate of your loan, so you can choose a car that comfortably fits your budget.