Labor Day is approaching quickly, coeds are off to school, and summer car buying season is in full swing - with current auto loan interest rates holding steady in the low 4%,(1) consumers are regaining confidence in the economy,(2) and venturing to dealerships looking to take advantage of late 2013 vehicle model deals.
The decision to purchase a vehicle involves a number of budget considerations, and CarFinance.com has created key tips to empower consumers with detailed budget know-how throughout their vehicle selection process- they are especially important for college students, who may be living on their own for the first time!.
Items to calculate before signing on the dotted – or electronic – line:
1. MONTHLY PAYMENT: Understand what level of monthly payment you can afford by doing a detailed, hyper-honest budget-setting exercise. Be sure to include insurance and maintenance for the new vehicle, including gas! Check with your insurance agent and they can give you some ball park figures. Mine told me of a 19 year old who works off-shore, purchased a $35,000 truck, but his insurance monthly rate is almost as much as his car note, due to is past driving record! Insurance can be a huge sticker shock if your child is no longer on your policy!
2. KNOW YOUR APR UPFRONT: The higher the APR (Annual Percentage Rate) - the cost you will pay on the loan, including your interest rate), the higher the monthly payment – and the more you will ultimately pay for the car.
3. LENGTH OF LOAN: Determine how long it will take to pay off your loan based on the monthly payment you can afford and your APR.
4. REBATES VS RATES: Understand the difference between the benefit of a cash rebate versus lower monthly interest rate before including it in your calculations.
5. TOTAL PRICE OF THE VEHICLE YOU CAN AFFORD: This is the holy grail and to calculate this using one of the many calculators you can find online, you will need to allow for your down payment, monthly payment, APR, and the realistic price of the vehicle you are interested in, as well as trade-in (be sure to do your research to get a realistic sales price, whether you are selling the car yourself or trading in), rebates, sales tax, and loan term.
6. GO SHOP: Now that you know what you can afford, you can research online on sites like Edmunds.com or KBB.com to find vehicles that fit your budget.
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