Budgeting for a new car is more complicated than it ever has been, thanks to a chip shortage killing new car production. This makes shopping for new cars super complicated for first-time buyers. If financing a new car is on your to-do list, then it’s important that you go into the purchase process fully informed.
Do you want to make sure that you land a good deal on your new car? Read on to learn how to finance a car!
How Much Money Do You Need to Put Down?
Ideally, you want to have a hefty amount of money to put down on your new car. Most financial experts recommend that you put at least 20 percent down. That’s $2,000 down for every $10,000 of car value.
Putting money down on a car is helpful for a number of reasons. First, it helps reduce the amount that you’ll have to finance. It’s also a sign of good faith to potential lenders, and it could result in lower interest rates.
Can’t afford to put 20 percent down on your preferred model?
You can probably get away with a smaller downpayment, but understand that you’ll likely end up paying a higher interest rate. Consider looking at alternate vehicles with lower price points to help you get close to that 20 percent down. In fact, you can find more here.
Can You Afford New Car Payments?
When deciding if you want to finance a vehicle, it’s important to do a thorough check of your monthly budget. Can you really afford new car payments?
Start by determining how much you can afford to pay a month in terms of car payments. Then, use a credit simulator to determine what your credit score is. Your last step is to plug information into a payment calculator to determine how much car you can afford on your budget.
Take the sticker value of the car, the money you have to put down, and your credit score and plug them into the calculator. If the number that comes back is within your budget, then you’re good to go on your preferred model. If it’s not, then you need to look into other cars.
Should You Lease or Finance a Vehicle?
A lot of people consider leasing their vehicles instead of buying them outright. Leases are beneficial for people who want a low monthly payment and who don’t like owning one car for too long. The biggest downside to leases, though, is that you aren’t actually investing in anything.
With a lease, you’re giving money to a dealer or manufacturer and getting nothing in return. Even though financing a car is more expensive on a monthly basis, you’ll save money in the long run when you have equity in your car.
Are You Planning on Financing a New Car?
Financing a new car is something that you’ll likely do several times throughout your life. Taking the time now to learn how to do it properly sets you up for a greater chance that you’re satisfied with your new purchase. Before you know it, you’ll be on the road in your new ride and feeling super thankful that you did your research!
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