Buying a new car is a big step, and it helps to find a good auto loan calculator that can help you decide how much car you can afford. Like any major purchase, doing your homework can help make it easier to get a loan for a used or new vehicle.
Setting a Budget
Before you begin to compute payments and look at exciting new car models, it's a good idea to determine exactly how much money you can afford to spend on your next vehicle. If you let the excitement of car buying take over, you may end up with a car payment that makes it impossible for you to afford other fun things like vacations or new outfits.
True Cost of Ownership
There's no doubt about it; owning a car can be expensive. When you are making your car budget, keep in mind that you'll also need to include money for car insurance, maintenance, repairs, and gas. It's a good idea to have money set aside to cover emergency situations. You don't want to be left paying for a car that won't even start.
How Much Debt Can You Afford?
Before you buy your new car, you should figure out your debt-to-income ratio. This is part of what banks use when determining whether they should lend you money. To get an idea of your ratio, simply add up the payments on all your installment loans. Include credit card payments, student loans, and other car loans.
Your total debt-to-income ratio should be less than 15 percent of your total monthly after-tax income. If it is, you have a better chance of qualifying for an auto loan. This calculation will also help you determine how much car you can afford.
Auto Loan Calculators Online
The Internet is a great place to find a calculator to determine your car payment. Make sure the site you choose is reputable. The following sites are great resources to help you calculate a monthly car payment.
- Edmunds.com has an excellent calculator that even includes a tool to help you determine the value of your trade-in. This payment calculator even includes the vehicle sales tax and title and registration fees.
- Cars.com offers a simpler auto loan calculator. You can plug in the trade-in value, down payment, sales tax, and vehicle price to get a good idea of what you'll pay each month for your next car.
- The calculator at CarsDirect.com has another helpful feature. When you've determined a price range for your next car based on the payment you can afford, the site will suggest a list of cars that fall within your price range.
Qualifying for a Loan
Besides your debt-to-income ratio, banks look at your past credit history, you current employment situation, and a variety of other factors before determining whether they will lend you money for a new vehicle. To make the process easier, it's a good idea to have your financial documents on hand.It also helps to have a down payment. When you invest money in your car at the time of purchase, the bank feels that it is sharing some of the risk with you. If you have a stake in the vehicle, they feel you'll be less likely to skip out on payments. Plus, having a down payment means that your monthly payment will be lower.
Getting Ready to Buy
After you've calculated the monthly payment for your vehicle, qualified for a loan, and chosen a car, you'll be well-armed for the car negotiation battle. Car dealers make money from selling cars, and they'll want to sell you the most expensive vehicle they can. However, this is where your homework will pay off. Since you know exactly how much car you can afford, you'll be far less likely to waver when it comes to price.
