You’ve found the perfect car. It has every feature you want, it’s stylish and it has great safety ratings. But, can you afford it? While you may need a new vehicle, the last thing you want is to get in over your head with an expensive car loan. Here are some tips for deciding how much to spend on a vehicle.
Consider the Down Payment
How much can you afford to spend on a vehicle down payment? The average recommended down payment for a vehicle loan is between 10 and 20 percent of the purchase price. However, depending on your auto loan terms, you may be required to submit a specific down payment rather than choosing how much you want to put down.
Keep in mind that, the more you put down up front, the less you’ll have to repay with interest on the loan. If you don’t yet have much to put down on a vehicle purchase, consider whether you can wait a few months to buy the car and save up for a down payment.
Research Loan Rates
Auto loan rates vary between lenders. Rates can also vary based on your credit score. Knowing the average interest rate that you can expect to pay on an auto loan based on your credit score and other factors will help you determine whether now is the time to purchase a vehicle.
To find the best loan rate, compare offers between a few lenders and learn more about how factors like your credit score and your other debts are affecting the interest rate. A good rule of thumb is to take out a loan for a vehicle that’s below your top budget amount. This will give you a little wiggle room in case other unexpected expenses pop up after you buy the vehicle.
Calculate Taxes and Fees
According to Car Shopping: How to Calculate Affordability, an important part of every car shopping experience is determining the taxes and fees that you would pay on a vehicle.
Taxes and fees vary between states, but they can be fairly expensive, so you’ll need to inquire about what to expect in your state. The last thing that you want is to buy a vehicle that you think is within your budget, only to then find out that the cost of taxes and fees is more than you can afford.
Know Your Budget
Your monthly budget will majorly impact which car you can afford. When calculating your monthly budget, don’t just look at your consistent bills like health insurance, rent and cable. Also calculate your average monthly unexpected costs to gain an accurate idea of how much you spend each month. Compare the amount you spend each month to your income to determine how much remains to pay for a new vehicle. If possible, cut out some of your monthly expenses to make more room for auto loan payments.
Car shopping involves much more than simply finding a vehicle that catches your eye. Rather, make an informed purchase by determining how much you can afford to spend on a new car. Do this by researching loan rates, by calculating the taxes and fees associated with a car purchase in your state and more.
Shayla Ebsen is a freelance writer and editor with more than 10 years of professional writing experience both in the corporate and freelance settings. Learn more about Shayla here.