It’s tough to figure out exactly how much car you can afford. You always want to be smart about budgeting for major purchases, which means spending only what you can realistically afford and being knowledgeable about financing options. Here are five tips for figuring out your budget for a new car.
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Know the Worth of Your Current Car
There are many online resources for figuring out what your car is worth. Kelley Blue Book is a great place to research the value of your current car. Whether you decide to trade in your current vehicle for the new car you purchase at the dealership or sell it yourself, it’s good to know what you can expect to get for it. Selling your car on your own can give you cash for a good down payment on your new car, which is always nice to have.
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Figure Out What Monthly Payment You Can Afford
When deciding on your budget for a new car, you’ll need to know what you can afford to pay monthly. You don’t want to end up stuck with a regular monthly payment that you can’t keep. Don’t forget that this payment amount will include both the principal amount of the loan and your interest. There are three main factors to a car loan: the term length, down payment, and interest rate. Do some research to figure out what kinds of rates and terms are available before heading into the dealership.
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Be Prepared for a Good Down Payment
Whether you use some savings or the cash from selling your previous car, putting up some money for a good down payment will help lower your monthly cost and can sometimes lead to better interest rates. Ideally, you’ll want to be able to put up at least 20 percent of the price of your new car.
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Understand Your Payment Timeline
You might find a loan option that offers really low monthly payments, but be aware of its term length. A longer-term car loan may give you low payments, but it means that the bank will own your car until you’ve paid it off, and you’ll be paying interest for that whole term. If you can afford a higher monthly payment, it’s better to own the car faster and get away from having a monthly payment at all.
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Decide on a Price Range
Understanding interest rates, loan terms, and monthly payments will lead you to decide on a realistic price range for your new car. No matter which type of car you want, you’ll need to start looking in the right price brackets. Don’t waste time shopping for a $60,000 luxury vehicle if you can only afford a $15,000 car. Be careful to keep in mind other costs like insurance coverage, registration, maintenance, and more as you figure out what you can afford.
Once you’ve decided on the right budget for you, head to Bommarito Mazda West County to check out our great selection of new vehicles. Our staff will be happy to work with you on financing to get you behind the wheel of the car you want.
Image via Flickr by free pictures of money | CC BY 2.0.
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