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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)
-___health insurance or HMO
-___401 (k), IRA, or other long-term savings
-___telephone, cellular phone, cable, internet, etc.
-___entertainment and fun stuff (be honest!)
-___cost of yearly vacation(s) divided by 12
= ____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).
= ____ 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.
Joel Walsh is a regular contributor to Auto Loans :http://cars-auto-loans.com, where he writes about how you can get the best car loan