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When it comes to car buying, it can get costly. They may request a down payment; you may need a co-signer or many other things.
Car buying is considered the second most expensive purchases in any person’s life. Depending on the loan term, your payments can be extended even further.
Interest rate
Next, make sure you consider the interest rate. Maybe this is an excellent time to consider used cars. The higher the interest rate, the higher the car note. For example, a car that costs $25,000 with an APR of 8% is about $506 a month. Check to see what interest rate you will qualify for before buying a car.
Loan term
Also, you want to consider the loan term. A longer loan term may equal a cheaper car note every month. The shorter the loan term, the higher the monthly payment. You may end up owing more once you add the interest rate if you extend your loan term. Make sure it is something that can be paid off in about 3 to 4 years to save yourself some money.
Review & reframe your budget
Make sure you review your budget. This goes for both paying cash for a car and financing. Take the monthly payment into consideration. This may affect your budget. For example, you may already know what you can handle if you have been paying a $500 car note for some time. If this is your first time, write out your expenses to see what you have to afford.
Consider costs
Newer vehicles come with additional costs that may be expensive. For example, it usually will cost you more to insure a newer vehicle that it would a used car. Think about repair costs and fuel costs when factoring in your budget.
Consider trade-in
Maybe you want to trade in a car. This may help you afford a new car if you have one to trade-in. This comes in handy if you have your eyes on a new car. Be sure though that you do not owe more on the car than it is worth because you will end up rolling over negative equity into the new loan. This will mean your car note will be way more than what you bargained for.
Research & Set a limit
The next tip to remember is to consider all options and set a limit. For example, do not plan on taking out a loan that is going to surpass 10% of your monthly income. If your monthly take-home pay is $3500, do not spend more than $350 per month on a car note. Pick a couple of cars that you like and compare them cost-wise. Do a little research to determine which one you will be financially better off.
Maintain a balance
The last tip is that you should spend less than you can afford. This may mean that you can’t get the car of your dreams just yet. If you can afford it and it is reliable, you should consider buying it. Do not overspend on a car you can’t afford and end up getting yourself into a financial bind. Try to keep your expenses reasonably low. Save as much money as you can.
The takeaway
These tips will be very helpful if you are shopping for your first car or fourth car. You should spend more than you can afford. You must try to set a firm budget. Do a little legwork to determine what options you have.
