Financing a Car: Five Things to Plan For
Purchasing a new car is an exciting time in your life. A car is a great investment that you will be able to use for years and year if taken care of correctly. Because it is such an important purchase, many of us feel stress and pressure to finance right. The payment plan you choose will stay with you for most of the car’s life as well. If you plan to finance your vehicle, do your research first. Paying for your own vehicle requires some careful planning to get a deal that you can comfortably afford. Here are some tips to help get you started and prepared for your next big expense.
Examine your Budget
When looking to finance a car, make sure that you can afford it. Use online calculators at sites like bankrate.com to estimate monthly car payments based on the cost, interest rates, term of the loan, and down payment. Determine how much you can afford to spend on a down payment and monthly interest payments. Aim to have six months’ savings available should you lose your job, and a monthly payment that is less than 20 percent of your take-home pay. Good budgeting is the key to getting a car that will last you a lifetime.
Research the Best Available Rates
While a car dealership may offer you financing on your new vehicle, shop around to see what interest rates you can get from lenders at local banks or credit unions. The interest rate you get is determined by your risk level. If possible, try to raise your credit score in advance to improve your potential interest rate.
Watch Out for Extra Features
Dealerships will try to entice you with extra items during the sale of a vehicle. These may include extended warranties, alarm systems, wheel upgrades, and the like. To minimize your overall costs, try to avoid going after these extra features. Save on expensive new features by buying used.
Consider Lower Monthly Minimum Payments
Consider going for a longer loan with a lower monthly payment. The interest rate and total costs over the lifetime of the loan will be slightly higher, however, you can pay more than the minimum payment each month to pay down your loan more quickly, and reduce the overall amount of interest. Make sure you ask for a loan with no pre-payment penalties. The lower required monthly payment gives you some flexibility to pay less each month, should you encounter unexpected financial hardship.
Consider the Cost of Insurance
When financing a car, you will be required to purchase comprehensive insurance coverage. Check with your car insurance company or search some of the major insurance providers to get a quote. You can reduce monthly costs on comprehensive insurance by going with a higher deductible. In addition, if your down payment is less than 20 percent, you may be required to purchase gap insurance; this pays the difference between the market value of the vehicle and the balance on your loan, should you total the car. If your car does get damaged and you have a high deductible, there are plenty of companies that can help repair it for reasonable prices; for example, if your windshield glass gets damaged and you require a windshield crack repair in Edmonton, All-West Glass Ltd. can help restore your windshield to pristine condition without much cost to you.
Financing a car is a major decision that affects your savings and expenses for several years. Do your research to determine what you can comfortably afford each month, while analyzing different loan scenarios to minimize your total expenses.
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Category: Car Purchase
