Financing Your Next Car
Are you ready to buy a new car? Not so fast. Before you head to the dealership, you’ll need to assess your budget and access the right auto loan. You’ll need to work with a financial institution in order to get the best possible deal on a car loan (and you’ll need to use a car loan calculator to make sure that you’ve chosen wisely). Here’s your essential guide to financing your next car.
Budgeting for Your Purchase
Car purchases are pricey propositions. While you could get a new car with no money down, that’s not necessarily a smart idea. Instead, you should find a way to put down a down payment on your new car (or your used car, which will be a new car to you!), thus reducing the amount you’ll need to secure from a lender. This is important because car debt comes with an interest rate. While it’s not as toxic as credit card debt, a car loan is still something that you’ll want to keep manageable and pay off relatively quickly.
With that in mind, create a budget for your new car purchase. How much will you be able to put down? How much will you be able to afford in a car payment each month? Use common-sense guidelines to determine how much car you can afford. For example, some experts recommend making sure that each month’s payment amount is no more than 10% of your take-home pay. Others say 20%, but include not just your auto loan payments but your other car expenses as well (such as maintenance and gas). A budget or auto loan calculator can help you make the right call on your budget and auto loan amounts. From this, you should be able to figure out how much you’ll have to save up for the down payment.
Saving up isn’t easy, but it’s a little easier if you work with your local bank or credit union to create a savings or checking account for your near-term financial goals. Keeping money in separate accounts can be a smart way to visualize your finances and to keep yourself from mixing up your budget by spending rent money on cars or car money on rent. Every dollar may be worth the same amount, but keeping things straight can help you stay on budget and ensure that the right amount of cash is being put away for the long term. Consider getting your banking services from a local bank or credit union. A credit union in Middleville, MI, for example, may be able to serve its clients better than a national bank based in New York or North Carolina could. And since many local banks and credit unions now offer online banking, there’s no reason not to seek your banking services from the local folks.
You should also remember that not every dollar you save should go toward near-term purchases like a car. If you can’t afford to save for your new car while also growing your retirement savings and keeping your emergency fund strong, you may need to take a second look at your car budget and see if you can make it any cheaper. Perhaps you could aim to buy a used car instead of a new one. Both have their advantages, but you may be able to get “more car” for your money with a used model.
Securing the Right Financing
Once you know how much you’ll be able to spend on your next vehicle and how much debt you can afford to take out, you’ll be ready to shop around for financing.
And we do mean shop around. While many dealerships offer to finance, your best deal might not be available there. Your smarter move would be to get pre-approved for financing before you even step foot on the dealership lot.
You can do that by turning to a wide range of lending institutions that offer car loans. You’ll likely see a lot of different offers, though, and they can be complex. Each lending organization will look at your credit score and your credit history as well as the amount you’ll need to borrow. Depending on the loan you’re looking at, you may see a different loan term, a different monthly payment, a different interest rate, and other key differences. To make sense of all of your options, consider using a car finance calculator to determine which offer is best for you.
Finding Your Vehicle
With the right car loan ready to go, all you’ll need to do is find the right vehicle for your money. Car purchases are important things, so be sure to do your research. Find out the Kelley Blue Book value of any used car, and make sure that any used car you consider is dealership certified or otherwise guaranteed. Find a car at the right purchase price, make a sensible down payment, and rely on the right auto loan to get you the rest of the way—since you already secured your credit approval, that will be no problem at all.