Save on car loans
If you decide to buy a new or slightly used car and need a loan, the goal is to find a financing that does not burden your budget. Car loans are a number of numbers, and it is important to know your numbers before visiting a car dealer.
The first thing you need to know is that new cars lose value very quickly. The moment you drive this brilliant vehicle out of the car bag, its value drops, often dramatically. In a year, it’s worth about 25% less than you paid. If you don’t make a big deposit, you can easily own a car of a lower value than you need, a condition known as under water.
If you have to sell the car to cover a personal emergency, or if you are involved in an accident and the vehicle is full, you may not see enough money to pay the loan. Most insurance does not cover replacement costs, only the value at the time of the accident and the buyers will not pay you more than the car.
Think about what you can afford for the car. One of the best ways to avoid an underwater loan is a considerable deposit – probably about 20% of its value.
Other considerations concern:
The interest rate on the loan, also called APR: the lower the interest rate, the more principal you pay each month. A lower interest rate can significantly reduce the time it takes to repay the loan and reduce thousands of dollars of your total cost. Your interest rate is linked to your credit score. If you have a low credit score, try to increase it before taking a loan. You may want to consider talking to a not-for-profit credit advisor for advice on how to improve your credit score.
Loan term:
The term of car loans has increased in recent decades, with loans of six years or more for new cars common. Buyers opt for longer payment periods to reduce monthly costs, but in the long run they pay more for the car than those who opt for shorter refund periods. You should try to limit the loan to five years for a new car and three years for a used car.
Online loan calculators are useful:
An automatic loan calculator allows you to consider various options. Play with variables: See how a lower interest rate could shorten the time to repay a loan and how a higher stake would mean lower monthly payments.
Cost of fuel
Create a fuel budget. Start documenting regular weekly fuel needs, including commuting, grocery shopping, children’s shuttles (school, activities, etc.) and plans for short and long-distance travel. For each payment period, consider «automatically» raising the necessary amount for fuel costs, as would be the case with rent or mortgage, utilities and other premium items.