Before finalizing the deal for your newly purchased car, be sure to know the monthly payments you can afford. There are a number of recurring expenses to consider while determining an affordable monthly car payment budget. Keep your realistic monthly budget in mind while shopping for your next car.
Work With Your Existing Budget
The best place to start when figuring out how much you can afford to spend on monthly car payments is your existing household budget. If you do not already maintain some kind of budget for personal expenses, this is a great motivation to start. Ask yourself whether or not your current car payments have been easy to difficult to afford. This can serve as a handy indicator to what you can afford to pay for your next vehicle on a monthly basis.
More Than Loan Payments
There are more expenses to consider while figuring out how much you can afford in monthly car payments than the financing expenses. The cost of routine maintenance, average gas usage, insurance coverage, and other recurring expenses have to be worked into a realistic monthly car budget. A car you like that has loan payments you can afford may not be as affordable after all the other logistics are considered.
Insurance, in particular, can have a serious impact on whether or not you can afford the monthly payments you’re considering. Some cars are more expensive to insure due to theft, accident, and mechanical statistics. Before purchasing a car, shop around for insurance policy quotes. Gas mileage is another important factor to work into your monthly car budget. Compare the mileage your current car gets to what you can expect from your new vehicle to determine an estimated fuel cost.
Have a Cushion
What may be affordable now may overextend your finances before the end of your loan’s term. Due to the unpredictability of the future, you should provide yourself some kind of cushion in your monthly car payment budget. Just because you can afford as much as $600 a month now does not mean you should commit to monthly payments that high for the next several years. Consider opting for a less expensive car and funneling any additional funds into a savings account in case you run into future financial trouble.
A realistically affordable monthly car payment budget should be worked out before you set foot in a car dealership. Prior financing planning can ensure you can pay off your car without breaking the bank.
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