Looking for a new car or truck? If that’s so, financing a car is turning out to be one of your concerns. Financing a new car or truck is as crucial as picking out your vehicle itself. Most people who buy a new car or truck will need to take out a loan and make monthly payments.
The exact monthly payment depends on a number of things, to include the car price, interest rate, down payment (if any), and the duration of the loan. In addition to monthly payments, you should also factor vehicle insurance into your budget. Because insurance rates for many cars and trucks can be quite high indeed.
These main items that determine your monthly payment are examined in more detail below:
Vehicle Sticker Price
Your control of the price of a new car or truck is limited to the vehicle you decide on, and how much – if any – you are able to talk the dealer down on the price. The ‘out-the-door’ price of the car will include tags (license plates), registration fees, and taxes. They will be applied to the sticker price before you sign the paperwork. You ought to ask for this price before saying yes to buy the car. Often times, the down payment will be enough to cover these costs. You should count on putting a minimum of a thousand dollars down on a new car or truck.
You should look at only spending between 12 and 15% of your annual income (after taxes) on a new vehicle. This will keep you ‘in the black’ so you are able to make your other payments thru the year. Tally up your bills to see what’s remaining after subtracting this figure from your salary. This will reveal what vehicle payment is within your budget.
The Down Payment
A down payment will help you out on your monthly payments. If at all possible, you’ll be able to put down enough to pay for the ‘add-on’ fees that are typically added on the price of the car. You might get offered a ‘nothing down’ option by the dealer, but you should put something down on the car anyway. Your payments will be significantly less.
The Interest Rate
Your credit history will affect the interest rate you will get. But at least you do have some control over your credit; if you maintain good credit, your interest rate will be lower. The only exception is when you have little or no credit history, but even then, you should receive a fair interest rate. Even so, you should figure on a higher interest rate – even if you have purchased a car before. Current interest rates can fluctuate for many reasons, so it’s better to plan for a higher rate.
The rates of interest for banks and similar financial institutions (such as credit unions) usually vary from 6% to 9%. Dealerships, however, often offer rates as low as zero percent. You may wonder why dealers can offer such low rates when the banks won’t. The answer is simple: Dealerships mark up the price of the car if you go for the low interest rate. In any case, figure on a significantly higher interest rate for a used car or truck than a new one – no matter where you obtain financing.
How Long is the Loan For?
The more money you can afford to pay each month for your car or truck, the better off you will be: The interest rate will likely be lower and, therefore, you will pay less for the car or truck. Typical car and truck loans are given in 12 month, 24 month, 48 month, 66 month, and 72 month terms. You can pick which term you would like. You can always double up on payments in order to pay the loan off quicker.
Here Are Your Options:
Situation #1: So the ideal situation for financing a new or used vehicle is to have a good credit rating, put down money on the vehicle, and get a loan thru a lender at the lowest going interest rate.
Situation #2: But if the above “ideal situation” is not possible, take heart: Suppose your credit score is bad, so you have to get a high interest loan thru the car dealer (because the banks will not loan you money). And not just that, but you can’t afford a down payment and you have to get a 60-month or longer loan. So financing a car with bad credit is your only choice.
With this less desirable scenario, you can still finish okay: Just double up on your monthly payments, which will not be so hard considering that the monthly installments will be relatively minimal. By doing this, you can still wind up shelling out not much more for the car or truck than you would’ve with the “ideal” financial situation!