How much should you spend on a car? Here’s how to find out

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It’s time to buy a car, but you’re not sure how much you can afford to spend. Calculating the monthly cost of a car is not as easy as looking at its estimated price. You will want to factor in additional costs such as auto insurance and maintenance. And if you cannot pay for the car in cash, you will also need to take with you personal loan

To help you, here’s how to determine exactly how much you can afford to spend on a car.

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Decide how much to put in cash

The first step is to decide how much down payment you can afford. If possible, it would be wise to postpone a minimum of 20%. If you buy used, you can save 10%.

This down payment will help you avoid a loan coup when you owe more than your car is worth. In addition, the larger your down payment, the smaller the loan amount. This means lower monthly payments, early loan repayments, or both. Smaller loans will also save you money in interest.

Get pre-approval for a car loan

You can get pre-approval for a car loan by a majority banks and credit unions to get an idea of ​​the rates you are eligible for. In some cases, applying for pre-approval will not affect your credit rating… But if the creditor fulfills hard credit check, this type of request will end up on your credit report and may slightly lower your score.

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However, most credit ratings combine all car loan applications made within a short period of time into one request, which will have a minimal impact on your rating. So try to make all your purchases within a short timeframe.

Select a week to shop around and apply for a car loan at various banks and credit unions so you can get the best price possible. After getting pre-approved, you need to know how much you can borrow and if you are eligible for a loan. good interest rate… This will help you in the next step.

Calculate your total monthly payments

At this stage, you know how much you want to set aside and what rate you are applying for. To find out how much personal loan You can force me to buy a car, use the car loan calculator to calculate your monthly payments.

Play around with the loan amount until you get the monthly payment that suits you. You will notice that the longer the term of your loan, the lower your monthly payment will be. However, this also means that you will be in debt for a longer period of time and will likely pay more interest.

For example, if you borrow $ 15,000 at a 4% rate for 60 months, you will have monthly payments of $ 276 and $ 1,575 in interest over the life of the loan. If you shorten the loan term to 36 months, you will pay $ 443 per month, but only spend $ 943 in interest. It’s wise to try to minimize the interest you pay, but make sure you get a monthly payment that you can afford.

Don’t forget to include auto insurance

When it comes to car ownership, auto insurance is likely to be your biggest monthly expense, so it’s important to add it to your monthly budget. You can easily get car insurance rates online that will give you an idea of ​​how much you will pay. Once you think about how much an auto insurance policy costs, you may need to cut your car budget a bit.

Be sure to get quotes from several different sources to find best cheap car insurance… However, don’t skimp on lighting. Solve how much auto insurance do you really needand then get a quote for your monthly premium based on those coverage levels.

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Estimate maintenance costs

You should also factor in the costs of ongoing maintenance in your monthly expenses. AAA recommends setting aside at least $ 50 per month for maintenance costs such as oil changes and unexpected repairs.

Of course, the exact maintenance costs will depend on the model you buy. An oil change on an older Honda can cost as little as $ 30 to $ 50, while an oil change on a good sports car can easily cost a lot more. You can look at the recommended maintenance schedule for any vehicle you are looking for and then find out the prices for each of those services.

By assessing your monthly car ownership costs ahead of time, you can ensure that you are getting a car that really fits your price range.

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