Auto Finance: Budgeting for your Used Auto Payments
Balancing your budget and buying a used auto you can afford is a critical decision in making sure you build and protect your finances. If you are a student, a first time auto buyer, or a potential auto buyer that’s had a auto repossessed in the past for not being able to meet the monthly auto payments that you agreed to, then it’s a good rule of thumb to proceed with extra caution when you are considering a used auto so you don’t find yourself in a touch financial situation.
Many people start shopping for autos without really determining what it means to take out a used auto loan, or taking the time to calculate auto payments that can fit comfortably into their current financial budget. If you want to be a successful auto owner that’s not always struggling to meet your monthly auto payments, it’s a good idea to create a budget before you start picking out autos.
A Auto Monthly Payment You Can Afford
It is the opinion of many financial and auto buying experts that your auto loan payments should never take up more than twenty percent of your entire monthly budget. This twenty percent should include your auto and associated costs (i.e. insurance, gas, maintanence), and should be considered to come from your monthly net income, not gross income. If you have a fairly small monthly income, then you’ll want to do a little research into finding a quality, low cost auto, so you have cheap auto payments.
Auto Loan Details
To set your budget, determine how much money you have to put down on your auto purchase, any value you may receive from a trade-in, and what type of interest rate you may qualify for. You can get pre-approved for financing through online sources, and through your local bank or credit union. Based on the interest rate you receive, and how much you can afford to pay per month, you can use a auto loan calculator to help set your budget. Keep in mind most auto loan terms last 36, 48, or 60 months. The longer term you go with, the more interest you will pay over time.
Your Auto Purchase Budget
With your total down payment set and total loan amount identified, you now have your auto budget. You should look for used autos that are priced at 80% to 90% of your budget so you can afford to pay all the auto sale fees such as taxes and registration.
By being conservative with your auto budget you will protect yourself from unexpected hardship and by paying off your auto loan on schedule, you will build and reinforce a good credit score for future auto purchases and loans.