How do I know if I’m financially ready to buy a new car?

For many people in the market for a new, or new-to-you, car, the worry is about the amount of the loan and loan repayment. You need to only answer yes to these 2 simple questions:

  • Do you have a steady source of income that you have budgeted?
  • Is your credit score, credit history and current credit health good?

Without extra fees, the cost of a $10,000 car over 5 years can be between $170 and $220 per month. For a $30,000 over 6 years, you might be paying $500 per month (without extra fees).

A good budget with your expenses, and a solid track record with your credit history means that you are likely ready to buy a brand new, or even high-end used vehicle.

Or, you could just eyeball it…

You could also use a simple percentage-based approach to seeing if you can afford a car (and how much).

Example: Without a home loan, you can afford up to 20% of your income. So, if you make $1500 a month, you could afford a $300 a month payment. This might mean a $10,000 vehicle for a term of 5 or 6 years, with bad credit.

This does not include a down payment, nor other fees, nor insurance.

With a home things change a bit.

Example: With a home loan, you can afford on average 12.5% of your income to pay the loans on comfortably. If you make that same $1500 a month, you could likely afford a $180 a month payment. This means a $6000 – $7000 for 5 or 6 years, with average to poor credit (10% – 12% APR).

These are simple examples, but you can see that eyeballing can give you a decent overview of what you can, and cannot afford. APR, loan terms and fees are not covered here, and these values are simply for example.

For a general car loan calculator, please visit this article.

If you’re ready to get started, give us a call at (724)652-8393 for more information and an application for your loan!

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