How to Buy a Car without Destroying Your Budget

Just like anyone, you have dreams of owning a car or buying a new model that provides the features you want for yourself or your family. But since this involves a capital investment, your first move will be to know the price range of the vehicle you want and determine whether you have the means to pay it without breaking your budget. Although there are companies out there that offer financial help, it’s always good to make sure that you will be financially safe after buying the car.


Assuming that you decided to buy the vehicle via auto loan, there are two pieces of information you should get. These are:


  • Down payment – you should know the amount of cash you need to pay up front.
  • Monthly payment – this is the mount of cash you need to pay the loan on a monthly basis.


There are lots of financing companies that offer auto loans with low down payment, but it is better to make a down payment that is not less than 20% of the car’s cash price. It can help to reduce the total landed cost of your loan. By giving a high down payment, the amount or money you need to borrow will reduce. In effect, your monthly payments and the interest or your loan will also decrease.


To be able to make your monthly payments without without feeling too tight on the budget, your monthly installments should not exceed 36% of your gross income. You should know the exact equivalent of your gross monthly income. In order to avoid future financial troubles, you should see to it that your total monthly loan payments are not higher than that.


To determine if your total monthly loan payables do not exceed 36% of your gross monthly income, you should first establish that 36% by multiplying your gross monthly income by .36. Once you have the figure, itemize and add all your monthly payments including your mortgage, credit card bills, rent and other installments. If your total monthly payable exceeds 36% of your gross income, you should reconsider your auto loan because chances are it will surely affect your finances. If your total monthly payment is less than 36% of your income, you may add the monthly amount of your car loan to your monthly payables. If the result is less than 30% of your gross monthly earnings, you’re good to go.


When you buy a car, your focus will most likely be geared towards haggling for for the lowest price. But if you intend to purchase the vehicle, you should also concentrate on finding the best auto loan terms such as the auto loan refinance Colorado car owners choose.


You should also bear in mind that aside from the price of the vehicle, there are other costs that you need to consider. These are the registration fee and insurance premium. These are out-of-pocket costs and they too can affect your finances. Driving a car is a source of pride and fulfillment, but before deciding to buy one, you should first understand what lies ahead.


photo credit for featured image: Todd Lappin (

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