How much should you spend on a car? Here’s how to find out
It’s time to buy a car, but you don’t know how much you can afford to spend. Calculating the monthly cost of a car is not as easy as looking at its sticker price. You will want to factor in additional expenses like auto insurance and maintenance. And if you can’t pay cash for the car, you’ll also need to take out a personal loan.
To help you out, here’s how to figure out exactly how much you can afford to spend on a car.
Start your journey to financial success with a bang
Get free access to the selected products we use to help us meet our financial goals. These fully verified choices could be the solution to help you increase your credit score, invest more profitably, build an emergency fund, and more.
By submitting your email address, you consent to our sending you money advice as well as products and services which we believe may be of interest to you. You can unsubscribe anytime. Please read our privacy statement and terms and conditions.
Decide how much to put in cash
The first step is to determine how much down payment you can afford. It is wise to put at least 20% off if you can. If you buy second-hand, you can get away with putting 10% down.
This down payment will prevent you from having to wreck your loan, that is, when you owe more than the value of your car. In addition, the larger your down payment, the smaller your loan. This means lower monthly payments, prepayment of your loan, or both. Borrowing less will also save you money on interest.
Get pre-approved for a car loan
You can get pre-approved for a car loan from most banks and credit unions to get an idea of the rates you qualify for. In some cases, requesting pre-approval will not affect your credit score. But if a lender performs a rigorous credit check, this type of investigation will go on your credit report and can lower your score a bit.
Ascent’s selection of the best personal loans
Are you looking for a personal loan but don’t know where to start? Ascent’s choices for the best personal loans help you demystify the offers available so that you can choose the one that best suits your needs.
See the selections
However, most credit scores will consolidate all car loan applications made in a short period of time into one application, which will have minimal impact on your score. So try to do all your shopping in a short period of time.
Pick a week to shop around and apply for a car loan from various banks and credit unions to get the best rate possible. Once you’ve got your pre-approvals, you should know how much you can borrow and if you qualify for a good interest rate. This will help you for the next step.
Calculate your total monthly payments
At this point, you know how much you want to put in and what rate you are entitled to. To determine how much personal loan you can get to buy a car, use an auto loan calculator to estimate your monthly payments.
Play around with the loan amount until you get a monthly payment that you feel comfortable with. You will notice that the longer the term of your loan, the lower your monthly payment will be. However, it also means being in debt for a longer period and possibly paying more interest.
For example, if you borrow $ 15,000 at 4% interest for 60 months, you will have monthly payments of $ 276 and pay $ 1,575 interest over the life of the loan. If you reduce the loan term to 36 months, you will make monthly payments of $ 443, but you will only spend $ 943 on interest. It’s wise to try and minimize the interest you pay, but make sure you get a monthly payment that you can comfortably afford.
Don’t forget to take car insurance into account
When it comes to owning a car, auto insurance is probably your biggest monthly expense, so it’s important to add it to your monthly budget. You can easily get car insurance quotes online that will give you an idea of what you will pay. Once you factor in the cost of an auto insurance policy, you may need to cut your auto budget a bit.
Make sure you get quotes from several different sources to find the best cheap auto insurance. However, don’t skimp on the coverage. Decide on the amount of auto insurance coverage you actually need, then get a quote for the monthly premium based on those levels of coverage.
The Ascent’s Choices For The Best Debt Consolidation Loans
Want to pay off your debts faster? Check out our list of the best personal loans for debt consolidation and lower your monthly payments with a lower rate.
Pay off debt faster
Estimate maintenance costs
You should also factor in routine maintenance expenses into your monthly cost. It’s recommended that you set aside at least $ 50 per month for maintenance costs like oil changes and unscheduled repairs, according to AAA.
Of course, the exact maintenance costs vary depending on the car you buy. An oil change on an old Honda can cost as little as $ 30 to $ 50, while an oil change on a nice sports car can easily cost a lot more. You can look at the recommended maintenance schedule for any car you check out, and then research the prices for each of those services.
By estimating your monthly car ownership costs in advance, you can make sure you get a car that truly fits your price range.