Buying a new car is an exciting purchase, but it’s easy to get swept away by newest features, add-ons and upgrades. To prevent yourself from purchasing a vehicle that is too expensive, you need to know how much you can afford.
Start with knowing the highest payment you can afford.
Knowing what you expect to pay on a month-to-month basis is a great starting point for determining your car-buying budget. Sit down and calculate your current expenses and income, and determining a payment that fits your budget.
Beware, when the dealer asks you what you want you payment to be, know what you are willing to pay for the car itself. They use your monthly goal to try to sell you add-ons or newer models that could theoretically fit into your monthly budget, but they do so by extending out the length of your loan, which in the end costs you more.
Calculate monthly insurance costs.
Don’t forget. You will need to insure your vehicle when you are determining the right price you want to pay for a car. Overlooking your monthly insurance premium could overextend your finances and leaving you struggling each month.
Variables that affect your insurance costs include:
- The value of the vehicle
- Average cost of parts
- Safety Ratings
- Type of vehicle (e.g. economy, luxury, SUV, sports car).
- Full coverage vs. liability
In Oklahoma, the average monthly car insurance bill is $131. Keep in mind. A brand new car will often cost more to insure than a car that is a year or two old.
Oklahoma laws require drivers to carry comprehensive and collision minimums, but lenders require you to have full coverage when you have a loan.
Determine the right down payment.
The down payment will have a big impact on the monthly payment and the total spent on interest payments. Sometimes, a large down payment can land you a better interest rate. It can also prevent needing GAP insurance for the first year when you might owe more on the car than what it is worth.
It’s not uncommon to need to put at least 10 percent down, but 20 percent is advisable. If you buy a $30,000 car, you will probably need to put down $3,000 to $6,000.
What’s the loan term?
Most car loans are for five years. If you are buying an older vehicle, it may require a shorter term like 24 months instead of 60 months. In other scenarios, someone could receive a 7-year term, but keep in mind, the longer term means more in interest payments, therefore, you pay more for the car in the end.
What’s your interest rate?
Currently, the national average interest rate on a car loan is 4.21% for 60 months. Take advantage or seasonal promotions to land a better deal. Are you in the market for a loan? Be sure to contact WEOKIE.
The interest rate will change the overall cost of the car and your monthly payments, so be sure to shop around for the best possible deals.
For example, if you plan to purchase a car and your monthly payment goal is $700 in total expenses (including gas and insurance) and your interest rate is 4.21%, then you can afford a car for $25,634. If the interest rate is 3.5%, then you can afford a car for $26,032 (Almost $500 more).
Don’t forget other monthly expenses.
If you buy a car - you must also buy gas. If you drive about 1,000 miles per month and get approximately 29 mpg, you’ll spend on average $75 a month on gas. That’s not including parking fees if you live in an apartment or if your workplace requires a paid permit. If you have a gas guzzler, then you will need to increase the budget significantly (or drive less).
WEOKIE Auto Loan Calculator rocks, and here’s why.
Most auto loan calculators do not take into account all of the extra expenses for car ownership. WEOKIE considers everything from gas to insurance, which will increase your monthly car budget. Try our loan calculator to show you how much you will be spending on the principal, and how much will be spent on interest payments.
If you’re thinking about buying a new car, do your homework. Use the calculator with different scenarios and nail down the budget that is best for your household.
Ready to join WEOKIE? Here’s a checklist to make sure you’re ready.
*See a WEOKIE rep for details. Federally Insured by NCUA