In today’s society, having a car loan is a pretty common thing. Sadly, many people get financing for much more than they can afford, especially when pressured by pushy salesmen at car dealerships. This creates an increased risk of missing monthly payments and even losing their vehicle. It’s important to do your research ahead of time and apply only for a loan that you know you can reliably pay. So, here are several tips on how to make sure you don’t pay too much for those car loan payments.
Make A Down Payment
There’s no better way to make sure you have smaller car loan payments than to pay some cash up front. Down payments not only ensure the loan amount is less but also that you won’t have to pay as much in interest either. It’s usually recommended that you pay about 20% down, if possible. Even if you can’t afford that much, any amount you can pay up front will ultimately help lower your car loan payments.
Be Aware of How Your Credit Affects Your Interest Rate
And speaking of interest rates, it’s important to know that these rates on your will be directly impacted by your credit score. So, if you know you have bad credit or perhaps have no credit at all, expect to pay much more in interest than the average person. This, of course, will drastically impact your monthly payments, so keep this in mind when you’re car shopping. Check out this article on how to prepare your credit score for an auto loan.
Keep The Term Of Your Car Loan Payments As Short As Possible
Many people mistakenly focus on monthly payment amounts when considering a car loan. And car dealerships encourage this, frequently getting customers to buy a more expensive car loan by convincing them to take out a longer term. While this may indeed lower the monthly payments, it ends up costing far more in the long run because of the interest. Mitigate the impact of your interest rate on your loan by keeping your term to 4 years or less. If you can afford 2-3 years, even better!
Minimize Your Monthly Payments
So, how much should those monthly payments be? The golden rule of thumb here is to keep your monthly car loan payments to less than 10 percent of your gross income (the amount you make before taxes). So, if you make $3000 per month, your car payment should be no more than $300. And, keep in mind, that’s including interest, fees, and taxes.
One great way to see exactly what your monthly payments could look like is through a Car Finance Calculator. This allows you to change interest rates, down payment amounts, and term lengths to see what you can afford each month.
And when you’re ready to get that new car, our financial partners here at Blue Sky are ready and waiting to give you the best options out there. Visit us online to apply!