Can I Afford a Car Loan

September 12, 2017
Cars are a necessary part of modern life. Depending on where you live, you may need a vehicle to get to work. In some suburban areas, you would be stuck at home forever without a car. So the question is not whether or not you need a car, it is how can you afford a car?
Can I Afford a Car Loan

If you can, the question then becomes: what kind of car can I afford?

How much of a down payment can you afford?

Experts recommend paying at least 20% of the total cost of the car as a down payment. For example, if the car’s price is $20,000, you should pay $4,000 up front. The reason for this has to do with depreciation. If you put down less than 20% and you have to sell the car before the loan is paid off, then the selling price may be less than the remaining balance on the loan. This means that you may still be paying for the loan even though you no longer own the car.

You have two options if you cannot afford a 20% down payment. You could 1) get a cheaper car so that you can cover the 20% down payment, or 2) you could get the car anyway and realize that you are going to be stuck with the monthly payments no matter what.

How much can I manage in terms of monthly payments?

Perhaps more importantly, you should decide how much money you can afford for the monthly payments. General guidelines suggest that your car should not cost more than 10% of your monthly income. If you make $2000 per month, then your maximum car payment should not exceed $200. If you can get a car that will cost less than 10% of your monthly income, that would be even better.

It is important to remember that you should factor fees and interest payments into that 10% limit. You should not simply divide the sticker price of the car by the length of the loan. Get the dealer or loan provider to give you an exact quote for the monthly cost before you make the final decision. 

What if I cannot make the payment this month?

You can use an online personal loan as a safety net. Occasionally, unexpected expenses will come up. This happens to everyone at some point. These costs may be unavoidable, but you can have a plan to deal with them even if you do not have the money in the bank to cover your car payment. For example, you could use online personal loans to either cover the extra expenses or to help you make your car loan payment for a month or two until your finances get back on track.

The online personal loan application and approval process only takes a few hours. This means that you will have the money to cover your bill quickly. Most of these quick loan money suppliers deposit the money, up to $700 or so, directly into your bank account. So if you have an automatic payment plan for your car loan, and the amount will be covered without you having to make any additional steps.

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