Talking About Cars

If you are looking at buying a new car, then you are probably worried about the financing.

Things in the current market can be a little tricky, and you may not find the same kinds of low cost financing opportunities that you may have found even as little as a year ago.

There are several different ways to think about how much of a payment you can afford on a new car.

When looking at a vehicle loan, you need to also consider all of the other obligations that you have each month. Taking on a new car loan is a long-term commitment these days. Some loans extend as long as five or six years, which is a significant period of time.

Experts often use a “rule of thumb” calculation to give a rough idea of the amount you can afford to spend on a new car payment.

For example, many experts say that you should calculate your monthly income, then subtract from it all of the set expenses that are non-negotiable. These would include rent or mortgage, utilities, food, required credit card or other payments, and any recurring transportation costs.

The amount that is left is your discretionary income. A car payment should be 20 percent or less of that remaining amount.

Naturally, you may be tempted to ignore certain bills when figuring that amount, since it will increase the amount you have available for a car payment. But this is actually a dangerous and unwise strategy that could leave you in a hole, and could make you lose your new car anyway.

Its better to know what you can really afford then take steps to either increase the amount of discretionary income each month or save for a larger downpayment in order to get the car you want.

The other choice, if 20 percent of your discretionary income is not enough to afford your ideal car, is to change the type of car you’d like to buy. Look around at other options – you may find something more affordable that meets your needs.

You should also consider expenses that are optional, but are ones you consistently incur. Fro example, do you eat out often? Is it something that is a part of your lifestyle that you would miss if your car payment prohibited it?

The next step is to find out the going interest rate on an auto loan for your credit rating. The easiest way to find out the going rates is to begin calling around to banks and credit unions and determine the general rate they are giving.

Some will say they can’t give you an accurate interest rate until they know your exact situation, but you can get round figures. They generally don’t differ greatly for an over-the-phone quote.

Use a payment calculator such as the one you’ll find at http://autos.msn.com/loancalc/newloan.aspx?pkw=PI&vendor=Paid+Inclusion&OCID=iSEMPI/. These calculators allow you to enter the price of a vehicle, the interest rate and the term of the loan to find a payment.

These calculators make it easy to compare the deals you get from a bank or credit union with the financing offered by the auto dealer.