It is easy to loose sight of reality when you are looking for a new car either for buying or leasing. Before you sign on the dotted line for an auto loan, take a critical look at your finances, credit score, and monthly income for the next few years of term of auto loan.
Here Are A Few Critical Steps in Setting a New Car Budget
It is crucial that you figure out accurately how much you will be able to afford for a new car. Things like the down payment you will have to be prepared for, what you can actually afford to pay every month, your credit limit, what will be its resale market value if you plan to sell it off a few years later.
There are other important issues like the car insurance additions, taxes you need to bear, and whether you can meet your household expenses to give a deep thought to.
The Steps
1. After you are decided on a particular car and shopped around for quotes from dealers as well as auto loan lenders, sit down to do your math. Decide on an amount you can easily put down as down payment. The higher the amount you are able to afford the better as it obviously pays back through reduced interest payout.
2. There are several auto loan calculators available on the net but when using one, mind that the loan amount also includes insurance and taxes. Get a fair idea of monthly payments, total interest and the number of years you are comfortable with.
3. Look back whether you have sufficient life and health insurances already in place, just in case. Auto loan lenders, sometimes insist on additional insurance cover depending on your financial and credit report status. You will have to take this into your car budget in case you are lacking them.
4. Critically compare the third party loan offers against loan from credit unions and dealership loan arrangements. Credit unions generally enjoy the reputation of being cheaper than banks while rates for dealership loans are slightly higher however this is not the case always.
5. Shed the belief that sticker prices are non negotiable. Dealers are free to add their margin to the base price and this margin is usually about 12-15%. There is always a room for bargaining with the dealers and their standard ‘bargain margin' is usually around 5%-7%. If you can pull off this, it very well pays for a part of your auto loan interest.
6. One final step in budgeting a new car is foreseeing and preparing for future adversities and financial crises such as job loss, loss of business, burglary etc. Although none of them are predictable, they are eventual possibilities in anybodys life. The question is not that of whether you face a financial crunch or not, but it is essentially one of whether you can meet your monthly payments or not for the term of the loan and after.
The writing on the wall is nothing moves without proper budgeting in an organized world. You can implement good points and suggestions from friends and if needed you can take a credit counseling also. After all, an auto loan is there to quench your thirst for a new car.
