You may badly need a car as a means to get you to and from work. Purchasing a car will cost you a considerable amount of money that you may not readily have, so the only option is to acquire a car loan, but how much can you really afford?
1. The basics
You should know the basics of an auto loan first before deciding on getting one, so you know what you are in for. The rule of thumb is not to set more than twenty percent of your monthly salary for the car you want. You will incur more monthly expenses aside from your auto payments, and you will have to spend money on insurance and for your car’s maintenance, so include all of these costs into the twenty percent share of your income. Putting a majority of your monthly income into the value of the car will make it difficult for you to balance your monthly expenses, since you do have other expenses you need to survive each month. Most financial advisors believe that a vehicle is not the best type of investment, since the value will depreciate and incur more expenses as years go by.
2. Decide on the type of car you want
Deciding on the type of car you will get will also play a big part in calculating your auto loan. Take a hard look at how much you earn monthly, and find out how much of it you can really afford to use on the car loan. This will leave you with a bracket of cars that you can really afford. It may not be your dream car, but you have to treat it as just a means of getting to where you need to go. When you are earning enough in the future, then you can get that car you’ve always wanted. If you are looking into a particular model, you have to consider the cost of repairs that you will incur in the future, because some models may cost more to repair. Insurance is another factor to consider, since insurance rates vary from one type of vehicle to another. If you purchase a new car, the warranty will save you a little bit of money until it expires. You will spend less on repairs for newer cars.
3. Calculating your payments
When calculating how much you will spend monthly to pay off your monthly car loan, consider how much down payment you are willing to make, the interest rate the bank offers, the terms of the loan you are getting, and the price of your car. Making a bigger down payment can affect the amount of monthly payments you will be making. A large down payment can equate to a lower monthly payment on the car loan.
The price of gasoline will also play a major part in deciding on the type of car to purchase and for calculating your auto loan.
Be realistic when choosing a type of car to purchase, be practical and choose one that won’t take so much from your monthly income.