How Much Car Debt Can You Afford?

1) Make a list of your average monthly non-car expenses, and subtract them from your earnings. ____your monthly after-income-tax income -___any other taxes -___housing (including any fees and property taxes, and utilities) -___food -___health insurance or HMO -___life insurance -___debt payments -___401 (k), IRA, or other long-term savings -___short-term savings -___telephone, cellular phone, cable, internet, etc. -___entertainment and fun stuff (be honest!) -___cost of yearly vacation(s) divided by 12 -___other expenses

= ____what you can spend on a car

2) Subtract your monthly car-related expenses from amount you have left over from your other expenses.

___What you can spend on a car (from above) -___Amount you’re spending per month on gas (raise or lower this figure depending on whether you are getting a car with higher or lower gas mileage). -___Monthly maintenance (remember: your new car won’t stay new long, so maintenance will be an issue). -___Monthly insurance (remember that for a new car, your insurance premiums may go up). -___Tax. = ____ Maximum monthly loan payment.

Now plug number above into a vehicle loan rate calculator to figure out big of a car loan, and how much interest you can afford.

Final Hidden Auto Loan Danger: Unnecessarily High Rates

If you simply take first loan dealer offers you, you are probably paying too much. Do some comparison shopping on internet, and bring a list of best loans with you when you negotiate loan terms with dealer.

Don’t let dealer cheat you by shifting cost from car loan to car price to deal on your trade-in. Make sure you get a good deal overall.

Congratulations! You now are far better prepared to stay out of an auto loan money pit than vast majority of car buyers. Now you’re ready to go shopping for a loan.

If you were to get a fixed 30-year mortgage at same that you’re considering hybrid, it is unlikely that you would get a fixed rate that matches teaser rate on ARMs in market. To take full advantage of this type of mortgage, you must fully understand that rate will revert to ARM levels at some point.

This means that you can count on a rapid and drastic increase in your monthly payment once loan goes back to a full adjustable rate basis. If you plan to stay in home for a very long time, your savings from locked in period will probably be wiped out when loan reverts to its adjustable status. You can consider a refinance, but that will also take some money out of your pocket. If you decide that you don’t want to sell property, keep in mind that overall, your loan will still be an excellent choice for your financial situation.