You might be already dreaming of a certain model vehicle that has your eye or maybe the features of a vehicle that would make your driving experience a more pleasurable one. Well, its time to come down to reality because the first thing you need to do before making that new car purchase is to estimate what the actual price range is that you can afford.
First thing you will need to do is to decide how much money you will be able to pay upfront in case and with a trade-in or even both. The monthly payment will be determined by how much money you will be borrowing and what the maximum payment is going to be that you can afford every month.
You may be lucky and find an auto loan that requires a low down payment of five percent but it is highly recommended that you put down as much money as you can afford and the preferred by most lenders is 20 percent. With a higher down payment this will reduce the amount of money you will need to borrow as well as reduces your monthly payment and also this will reduce the amount of interest you will be paying on the loan in the long run.
Keep in mind that your down payment doesn’t have to be in all cash, if you have a car already and there is any sort of trade in allowance the dealer may credit this back towards your down payment. If you sell the car yourself you will usually get more then you would if you were trading it in. You might consider this before you make the new car purchase.
Per Consumer Reports who are the financial experts, they recommend that your total debt payment be absolutely no more then 36 percent of your gross income. If you go by that rule, you will be able to determine how much you actually will be able to afford to spend every month.
In knowing what your down payment and monthly payment will be along with that a typical interest rate and the number of years you are going to be making the car payments for, you wll be able to calculate the price of the vehicle that you can afford and the loan amount that you will need to qualify for.
In addition to the vehicle price, you need to consider other costs, such as the Sales Tax, Registration Fees and Insurance premiums. The taxes and registration fees may have you reaching in your pocket as much as 10 percent or more and if driving a car that is worth more then your current income will cost you more to insure. Be sure to check with your insurance agent or get an insurance quote online to make sure you know what you are actually getting involved with prior to any new car purchase.