Determine What You Can Afford on Your Next Vehicle
You don’t want to walk into a dealership without an idea of which vehicle you can easily afford. The salespeople at the dealership are doing their job by trying to sell you the best vehicles they have available. It’s up to you to determine what you can afford as a monthly payment. The best way to determine this is by working backward.
For example, if you think you can afford a $300 per month payment, you’ll need to find out what that equals to in terms of a total loan amount. Using a loan calculator and entering in different terms and amounts will give you an idea of different monthly payments.
Knowing exactly the type of vehicle you can afford will arm you with the right knowledge when you walk into a dealership. However, you don’t want to just wing it by coming up with a random monthly payment. You don’t need to make complicated spreadsheets to determine your budget, but you do need to take a look at your finances. Below are a few simple tips for determining what you can afford as a monthly vehicle payment.
Look at Your Statements for the Entire Month and Categorize Expenses
Take your account and credit card statements for the month and look through each one. Review your expenses line by line. You can either write the expenses down or enter them in a simple excel sheet. An easy way to do this is to make a column for your fixed costs, which don’t change. These include items such as rent and utilities. Make another column for your variable costs, which do change, such as going out to dinner or splurging on clothes.
Don’t forget to also include ATM withdrawals, as well as any checks. Do this for each and every credit card statement, as well as any other bank accounts that you may have. Total the amounts in each column. This will give you a clear-cut picture of what you’re spending on a monthly basis.
Compare Your Expenses to Income and See if You Need to Make Any Changes
Once you have a total of all your fixed and variable expenses, compare this to what you earn on a monthly basis. Subtract these expenses from your income to see what’s left. This will be a pretty good estimate of the maximum you can afford in terms of a monthly car payment.
If this doesn’t give you much to work with, consider making some changes. For example, when you look over your expenses, are there items in the variable column that you can eliminate? These could include things such as subscriptions or memberships that you don’t use. Review the larger amounts in the variable column to see what is using most of your money. Taking a good, hard look at your expenses can be a little scary, but it will provide insight into the habits that possibly need to change.
Also, don’t forget that you may be able to negotiate some of your fixed expenses, as well. For example, shop around for auto insurance to get a better deal, or call your cable company to see if you can get a better price. Don’t get discouraged if you’re not where you want to be financially, because little changes can add up. There are also other ways to get a lower monthly payment on your vehicle.
Think About Putting Money Down or Trading in an Older Vehicle
If you’re still struggling to come with extra cash, consider trading in an older vehicle or taking money from any savings and using it as a down payment.
If you have money in savings, you can reduce your monthly payment by applying it towards your vehicle loan. Enter the down payment and trade-in amounts in the same payment calculator mentioned earlier to get your estimated monthly payment.
Shop Around for Loans
You don’t have to use the loan service that the car dealership offers. By shopping around at various financial institutions, you can get the best interest rate possible. A better interest rate means a smaller monthly payment and a quicker pay-off time. Credit unions typically have lower interest rates than banks. Getting pre-approved through Marine FCU is a great way to start; you’ll know exactly what to expect in terms of a monthly payment, and which type of car you can afford.
Taking a good, hard look at your budget and determining what you can afford before going into the dealership puts you in control. Budgeting can be a little scary, but it’s well worth the effort. Check out tips for getting the best price on your next vehicle when you determine your price range.
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