With all the brands, models, and options that exist, the process of buying a car can seem overwhelming!

But the basics can focus on one simple question: how much car can I afford? The search for that answer begins before you even set foot on the lot. Read below for tips in finding your new ride!

Get Your Budget On Track

Be proactive in preparing for your car search! Go into the car purchasing process with key numbers from your budget. This is the best first step in figuring out how much car you can afford.

Take a few minutes to run down what you spend every month. From your monthly take-home pay, subtract rent or mortgage, bills, groceries, child expenses, savings, and miscellaneous spending.

When you calculate that amount (your net income), consider the 20% rule, which is the idea of limiting your expected monthly car loan payment (excluding fuel, maintenance, and insurance) to 15% or less of your net income. Following this rule helps ensure you have money left over each month to cover the rest of life’s varied expenses. 

Know Your Monthly Auto Expenses

Once your budget is organized, it’s time to figure out the ongoing costs of car ownership. This includes not only your monthly payment but also the cost of insurance, car maintenance, and fuel.

Monthly auto expenses differ based on your location, driving history, and vehicle. It may take a little time to determine the specifics, but knowing these costs can help you choose the car that works for you and your budget.

A few tips to get an accurate estimate:

  • Get quotes from insurance agents. It’s a good idea to have a few options to compare and contrast. Keep in mind that the more expensive the vehicle, the more its insurance will cost.
  • Be prepared for the varied costs of maintenance and repair. All cars whether new or used will require maintenance such as oil changes and brake pad replacement at some point. Keep in mind that some manufacturer's warranties and extended warranties require that scheduled maintenance be performed by a certified dealership, potentially adding more cost for several years.
  • Don’t forget the gas. The Environmental Protection Agency’s fueleconomy.gov website has detailed listings of annual fuel cost prices as well as calculators that let you compare fuel rates across different vehicles.

Breaking Down the Monthly Payment

Your monthly car loan payment is largely affected by your loan amount, interest rate, and loan term. These figures will usually depend on factors such as trade-in value, down payment amount, and the Annual Percentage Rate (APR).

Interest Rates

Auto loan interest rates are based on several factors, such as your income and debt, as well as your credit score.

Your credit score is often the most significant factor determining your interest rate. The higher your credit score, the lower your auto loan interest rate. If your credit score is less than stellar, consider finding ways to build it up before shopping for a car. 

GLCU can help you with tips to improve your credit score.

Term Length

When deciding on what loan term length is right for you, consider your overall budget and financial situation. 

If you prefer to save on the total amount you pay for your car, choose a shorter loan term or a less expensive car. A shorter loan term usually means your monthly car loan payment will likely be higher because you’ll pay off the loan balance with fewer monthly payments but pay less in interest.

How Much Car Can I Afford? Let GLCU Help!

Now that you’ve figured out your budget, have estimated your monthly costs, and are happy with your credit score, it’s almost time to go shopping! 

But remember that getting pre-approved for an auto loan can give you an advantage at the dealership. Talk to one of our loan consultants today and get pre-approved for a loan ahead of time. This will give you confidence and bargaining power at the dealer, plus you will know where you stand with budget and payments before you make your final decision.

You can also be confident that you’re on the right path with GLCU’s auto loan calculator. Input your unique financial information and it can help you find an accurate monthly payment that will work with your lifestyle.

Auto Loan Calculator

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