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How
Much Car Can You Afford?
If you are in the market to buy or lease
your next car, understanding how much car you can afford can
be a very daunting and crucial first step. According to experts,
you should not spend more than 20 percent of your net monthly
income, irrespective of the fact, how many cars you own. Most
experts say not to deviate from this limit even after you
have paid for your home and have few monthly bills to attend.
Items in your monthly payment at the dealership
• Proposed purchase price
• Down payment
• interest rate
• Term of your loan.
If interest rates are low, you can afford
more of a car. The down payment reduces the loan amount that
you have to repay and reduces the interest that you pay upon
it.
Items in your actual monthly payment in your budget
There are other factors that would affect
you monthly outflow for the car, such as:
• Insurance rates
• Fuel costs
• Maintenance
• Repair
Insurance is different for each model and
make of car that you may consider purchasing. Insurance for
a sports car will certainly cost you much more than you regular
sedan or a mini-van. Also, your insurance premium would reduce
if you bought an American car as opposed to a German or Japanese
car, as foreign cars cost more to repair.
Also, bear in mind that some insurance companies may offer
discounts for vehicles with additional safety features such
as dual front airbags, side-impact airbags, anti-lock braking
system (ABS) and daytime running lights. At the same time,
the insurance companies would charge higher rates for young,
inexperienced drivers or those with poor driving records,
or for cars that do not come with the value added safety features.
Whenever considering a car – one has to take into account
the maintenance cost it would incur. Many times people forget
that the more expensive cars offer free maintenance. Like
the BMW maintenance program, the owners save over the years,
even though its initial purchase price is higher. Also take
into consideration the fuel efficiency of the car. Frequent
fill ups would require a bigger budget.
New Vs. Used
A new car costs more because they include fees for things
such as manufacturer's transportation, cleaning, lot space,
commission and dealer profit. And the cars tend to depreciate
the moment the car sets out of the show room. The advantage
a used car gives is that the value of the car has depreciate
and you receive additional cuts in taxes, insurance and other
fees, making the purchase of a used car more attractive.
However, this sale does not come without its warning. You
may face difficulty in getting financing for vehicles which
are older than 4-5 years. Plus, they may come with no warranty
and any car history facts.
Do Your Groundwork
Always know how much car can you afford? Groundwork gives
you the benefit when it comes to negotiating, and you are
more likely to get the lowest price. More often than not a
pre-approved auto loan turns to be a best auto loan option
and help while negotiating on a car.
How can you do such assessments?
Today there are various websites which offer loan calculators,
which will let you assess the number of car payments and at
what rate you would be required to pay it. You have an option
of assessing the payment on different APR rates.
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