How Much Should I Spend on a Car?
Next to a house, buying a car is one of the most important investments a person will ever make. There are many choices to consider, such as whether you want to buy new or used. Most people require a car loan, but before you do anything, you need to figure out how much you should reasonably spend on this vehicle. You do not want to end up being stretched too thin with your monthly loan payments, so here are some general guidelines to help you.
First, Understand the True Cost of Paying for a Car
Most people need to pay monthly for their vehicles. However, that is only a fraction of what you need to pay total. You also need to consider how much you will spend on gas and insurance. It is also wise to plan for maintenance and breakdowns, so you should expect repair-related expenses to come up now and then. There are also registration fees and parking fees to bear in mind. You need to be ready for all this to be prepared to pay for your new car.
Next, Follow the 20/4/10 Rule
Automakers want you to spend as much as possible on a new car. However, before stepping foot in a dealership, you need to determine how much income you bring in monthly. This will allow you to determine where you fall within the 20/4/10 guideline.
This rule states that your down payment should be at least 20 percent of the total cost of the car. When determining how long to finance the car, it should last no longer than four years. This prevents too much interest from building up. Finally, the amount you spend on monthly vehicle expenses, including principal, insurance, and interest should be no more than 10 percent of your gross income.
For that last part, say you earn $4,000 gross income monthly, and you pay $80 a month in car insurance. The monthly car payment you would be able to make is $320. To remain comfortable, you should not purchase a car that would require you to spend any more than that.
To learn more about what you can afford or for additional help understanding the 20/4/10 rule, contact our friendly team at Del Norte Credit Union.
Then, Find Ways to Cut Costs
It's wise not to purchase a car from the first dealership you visit. You should visit a variety of places in your area to see where you can get the best deals – tell them you’re a member of Del Norte Credit Union. You can even return to the first dealership you went to and tell a salesperson you found a better price elsewhere, allowing you to negotiate better terms. Alternatively, you can contact our auto loan department to learn about how much you can save on car loans by partnering with a credit union.
Finally, Be Wise About Your Investment
Everyone’s situation is different, and you may not be capable of spending 10 percent of your monthly income on auto expenses. If you have a large family to take care of or still have student loans to pay off, then you may need to pay less on your new car. When shopping for a car, you should consider whether you need all the flashiest features. Buying used could be a better option. You also need to think about whether you will have any other major expenses, such as a mortgage, coming up soon.
Many people benefit from auto loans in New Mexico, and you can be next. Del Norte Credit Union has helped many people finance new and used cars, trucks and motorcycles. Even RVs, ATVs and watercraft. You can call or email us to schedule an appointment or apply online, and you can soon be on your way to getting your dream car within a reasonable budget.