When it’s time to buy a car, one thing to consider is what kind of payment you can make each month. It’s important to have a budget and stick to it, otherwise you can find yourself defaulting or making late payments. It may seem like you have no control over your car payment amount, but there are a few things you can do that will help you to pay less each month.
- Get your credit score up. The better your credit, the better your loan terms are going to be. Specifically, the interest rate typically goes down as your score goes up. This means that over the life of the loan, you’ll pay less.
- Borrow enough. Remember that the way lenders make money by loaning it to you is through that interest rate. If you don’t borrow much and your interest rate is low, the lender makes very little. While our first tip was to pay less interest, keep in mind how that hurts the bank. If your loan amount is too small, a bank is likely to raise the interest rate to make up for it. Borrow enough to make it worth it to the bank, otherwise, save up and pay cash.
- Make a down payment. The more you pay upfront, the less you’ll have to borrow. As we mentioned above, as long as you’ll still need to borrow a large enough sum, a down payment can only help you.
- Don’t buy more car than you need. SUVs and minivans are more expensive than smaller cars. If you don’t need to transport a family, don’t buy a car designed for one. Selecting the most practical car for your situation will save you money. Another bonus? You’ll pay less for insurance and gas, too.
- Watch your loan term. The longer your loan term, the more you’ll pay over time because of interest. However, you may end up paying more per month. If you’re not able to make larger monthly payments, you may have to borrow for a longer term and pay more for the vehicle over all. This isn’t ideal, but it may help you get the car you need when you need it.
Experts recommend keeping your car payment less than 15% of your monthly income, but do the math and make sure you can afford this. Saving up, having good credit, and giving yourself time to shop around can help keep your costs lower.
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