Upgrading Your Car? Here’s How to Pick a Manageable Payment
When you’re seeking an auto loan, there are many factors to consider. However, one of the things many people focus on, and for good reason, is the monthly car payment. You should never choose an auto loan based on the payment alone, but if you can’t make the monthly payment, then you risk having the car repossessed and destroying your credit. If you’re upgrading your car, here are some of the strategies you can use to make sure your monthly payment is manageable.
Consider All of the Costs of Car Ownership
Your monthly payment isn’t the only thing you have to pay on your car. You have insurance to consider, whether you pay it monthly, every six months, or once per year. You also have to consider gas, parking, maintenance, and repairs. In other words, you can’t be so over-leveraged on your car payment that you can’t get the oil changed or come up with a few hundred dollars when it needs a repair. Add up what these costs usually look like for you, so you can factor them in when considering your overall car budget.
Base Your Payment on a Percentage of Your Income
As a general rule of thumb, your car payment should not be more than 20% of your pay, and ideally, it should be below 15%. Aim for about 10% as a good figure for your monthly payment, as it allows you to set aside another 5% or 10% for repairs, maintenance, and those other ownership expenses.
Avoid Lowering Your Payment with a Long Loan Term
One way to get a lower monthly payment for a car you want is to agree to extend the loan term. However, the longer you pay on the loan, the more interest you will end up paying. This could cause you to pay thousands more for a car in the long run than if you had kept the loan shorter.