5 Questions About Getting a Car Loan
You have found the car of your dreams, or maybe just the vehicle that your growing family needs. You know you’re going to need an auto loan, but how do you know if you can afford the car loan for the vehicle that you’re looking at? Understanding what you can afford will let you know what price range to look at when you consider pre owned cars or new vehicles. It can be tricky to make the decision, and ultimately every household will have to decide what’s best for them, but there are some things to know that can help you make your decision.
The Average Range
For most people, 10% to 50% of your gross annual income is an appropriate amount to spend on a car. That’s an enormous range to work with, but it is hard to nail down because cost-of-living varies from community to community; yet the cost of cars does not change very much. An entry-level sedan from any particular car manufacturer will cost almost the same amount of money no matter where you buy it.
What Other Factors Do I Need to Consider?
it’s not just a matter of which community you live in, but also of how important your car is to you and your work, how much you care personally about a vehicle, where you personally choose to put your money, and the size of your family. Here’s just one example of how that all works: Let’s say that your family loves going to the mountains to go hiking and swimming. You don’t spend a lot of money on fancy restaurant meals, you don’t have an iPad for every child in the house, and you minimize the number of toys and other items you purchase. Your way of saving money and having fun as a family is going out to do a physical activity. In order to consistently and safely navigate mountainous roads, you may need a very good quality, reliable vehicle. In this case, you may be looking for a car loan that seems quite large, but in the context of your family reality, you’re actually being very frugal.
How Do We Compare to Others?
In general, the families looking to be the most frugal in the area of car purchasing will spend about 10% of gross yearly income on a car. The more common average is about 35%. Those who really love cars, or who need a particularly large and reliable vehicle, may spend up to 50%. There is no one-size-fits-all rule, which is important to remember as you seek out a car loan. It’s important to do what’s right for you.
How Can I Minimize Costs?
There are a couple ways to keep your costs lower. Going to a used car dealer rather than looking for new cars is a way to minimize car loan payments, and it’s also helpful if you have a trade-in you’re willing to make. Your car loan payments will also be affected by your credit rating, too. If you have the opportunity to improve your credit, it may be worth waiting six months to do so before seeking a car loan.
What Kind of Car Loan Should I Get?
There generally two important rules to follow. First, you should not have a car loan that’s longer than four years. At that point, the car will have lost so much of its value that it will no longer be worth your while to keep paying. Second, you should be able to put down at least 20% of the value of the car. That’s because it takes about one year for you to lose 20% of the car’s value. If you don’t put down at least 20% initially, you may find yourself owing more for your car than it is actually worth. This will cause you a lot of trouble if you have to sell before you pay off the loan or if the car gets totaled.
Cars are essential to life in modern America, so make sure you and your family are getting the best car loan deal you can.
