Getting In The Driver’s Seat of Your Car Loans
Car loans make it easy for people to own a means of transport. Just as the car you loaned for provides comfort when you travel, paying for your car loan must also be comfortable and manageable. However, when not properly steered, they can send your finances careening and hitting the skids. So before taking out an auto loan, consider these budget pointers.
1. Your Car Loan Payments Vis-a-Vis Other Expenses
When considering getting a car loan, first take a look at how this will affect your total budget. If you have not done so already, tally all your monthly expenses, such as food, utilities, mortgage payments, etc.) to help you see how your auto loan will fit in with respect to the other expenses.
2. Your Car Loan Vis-a-Vis Your Monthly Income
Also measure your monthly car payments against your gross income, after all, this is where you will be drawing payments from. Make sure that you do not have to struggle financially just to pay off your new ride. If this happens, opt for a more affordable vehicle. To be on the safe side, choose a vehicle that can be funded by a car loan that involves monthly payments that account for only 8 percent of your monthly income. Majority of consumers, though, spend an estimated 11 percent of their monthly income to pay for their cars. Steer clear of car loans that eat up 15 to 20 percent of your monthly income.
3. Car Loan Payments + Car Maintenance Expenses = You Driving Your Car
Do not rejoice right away if your projected monthly payments for your auto loan fit your budget. We are not done yet. Be reminded that you also have to spend for gas, insurance, and other maintenance expenses in order to run your car. The typical total cost of ownership is roughly 1.5 times more than the monthly auto loan payments. So set aside budget for that.
4. Paying Monthly Car Loan Payments on Time
To ensure that you are at the helm of your car loan, decide on the payment method that is convenient for you so that you can always pay on time. You can opt to pay online, over the counter at the bank, by mailed check, or by arranging an automatic payment plan. The last option is the fastest and most convenient manner of paying since once set up, you do not need to do anything. This is of course, with the assumption that you have sufficient funds in your account. You may be lucky to find a financial institution that offers lower fees for accounts under automatic payment plans. Besides, by paying on time, you avoid the penalties and you preserve your credit standing.
5. Planning for How Long You Have To Pay for Car Loans
Paying off your auto loan as quickly as possible allows you to make greater savings from paying interest. Paying a sizable down payment, as well as making additional payments should you have extra funds available, help to accelerate the term of your auto loan. Just make sure though that your lender does not charge penalties related to early or extra payments. Aim to fully pay for your car in less than 4 years. Otherwise, start looking for a more affordable vehicle or consider switching to another loan with better terms.
To recap, payments for car loans ideally must constitute 8 percent of monthly income and car loans must be payed off within 4 years or less.
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