Determining your budget is the most important detail to figure out before shopping for a new car.
Even if you’re shopping for modestly priced vehicle, things like gas mileage, insurance and maintenance can quickly add up. Figuring out what your total budget is will help to ensure that you begin shopping at the right price point for your vehicle while keeping your finances in tact.
What's your budget?
Before visiting car lots and shopping for colors and options, get a grasp for your monthly budget. Consumer Reports recommends that your total debt payment be no more than 36 percent of your gross income. Going by this rule, you can use the following steps to calculate how much of your monthly income you can comfortably afford to put toward your auto payments:
- Calculate what 36 percent of your gross monthly income is.
- Itemize and total all your monthly payments, including your rent or mortgage, utilities, other debts and loans.
- Subtract the total of your monthly payments from the 36 percent figure.
Once you know how much money you’re working with, reach out to the loan team at CU Community Credit Union to figure out what your interest rate would be on a loan. The team can also help you work out budget numbers if you need help with that, too.
How about a down payment?
Once you’ve determined your monthly budget, you’ll also have a clearer picture of how much you can pay as your down payment. Also look into how much you can get by selling or trading in your existing vehicle if you have one. The higher your down payment is, the better. Many financial experts recommend putting down as much as you can afford. If you pay more of the costs upfront, you’ll be financing less. A smaller amount financed means that your monthly payments will be lower, and ultimately, you’ll pay less money in finance charges.
What are the monthly carrying costs?
In addition to your monthly car payment, take into consideration the other costs necessary to run and maintain the vehicle. These costs include insurance, fuel charges, oil changes, tire rotations and cleaning. Once you have an idea of which vehicle types and years you are looking at, call your insurance company to get a quote to ensure that the insurance will fit into your monthly budget and adjust the car purchase accordingly.
Lastly, don’t forget the costs related to doing the car purchase. These include sales tax, title and registration costs, documentation fees, destination charges.
Questions? Let our loan team guide you through the car-buying process. We can go over your monthly budget to figure out a comfortable payment plan, quote you loan rates and help you determine much car you really can afford. Contact us via email or phone at 417.865.3912.