How Much Car Can You Afford?
So, you’re ready to make your next vehicle purchase? Great! Narrowed down the make & model that’s perfect for your needs? Awesome. Only one thing left to determine: can you afford a new car right now? Let’s find out!
In this post, we’ll help you work through the process of calculating how much you should spend on your next vehicle.
Consider Additional Costs When Calculating Monthly Payment
When considering affordability, your monthly payment is likely the first consideration you will want to work through. But as you begin to crunch those numbers, it’s important to factor in all the costs of vehicle ownership that go beyond your monthly loan payment. Cost considerations such as auto insurance, routine maintenance, and fuel prices, are all financial factors that impact your monthly budgets. When thinking about your income and other monthly obligations, forgetting these types of costs will give you an inaccurate figure for what you can afford on your next vehicle.
Rate & Term
When it comes to your loan, how long you decide to finance your vehicle and the interest rate are the primary factors that determine your monthly payment. In most cases, longer loan terms come with higher interest rates. While many of us may prioritize a lower rate, others approach car buying with a monthly payment figure in mind. It’s important to all of your rate & term options.
Your credit score is another key component that decides your interest rate and the total cost of your new vehicle loan. If you know it’s time to buy a car, making sure that your credit is in great shape before applying could save you a lot of money in interest over the course of your loan.
Additional Costs & Coverage
Another factor that impacts your monthly loan payment is the cost of any “extras” that are financed into your loan. Extra costs such as GAP insurance, manufacturer warranties, or rolling over any residual loan balances if you’re trading in a previously financed vehicle can all impact your loan amount. While protecting your purchase is important, shopping around for these extras (or considering a down payment towards these items) can save your wallet each month and in the long-run.
Determine the Total Purchase Price
The last thing to consider when it’s time to buy is understanding the “all-in” cost to drive your new car off the lot, as your total cost will likely include much more than the price on the window sticker. Additional expenses, such as sales tax, registration & title, plus any dealership fees, can add up quickly. While many of these costs are non-negotiable, they are typically based on the purchase price and should be taken into account as your shopping around.
A great way to prepare for a vehicle purchase is to get pre-qualified. Once you’ve settled on a monthly budget and figured out what you can afford based on those numbers, give us a call or stop by a branch to take the next step in the process. Once you’re pre-qualified, you’ll have real numbers to work with, which can translate to negotiating power at the dealership. Take it a step further with our Check-In-Hand loans; we’ll deliver the actual loan check to your desk or door. We make applying easy, too – simply call or visit your local branch, or apply online.
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