Just because you want to buy a car doesn’t mean you should. The purchase requires a large sum of money, so you need to ensure that you are financially capable of making it. Before you purchase a car and think about auto loans, find out how much of a car payment you can afford. You can do this with the help of a car loan calculator.
Calculating a car’s affordability
A car loan calculator is a valuable tool that will help you determine a car’s affordability. It is designed to do this by computing monthly car payments as well as the overall loan cost. To calculate these, you should enter specific information, such as the car price, down payment, loan term, and annual interest rate. In some calculators, the trade-in amount and sales tax rate are also requested. These are some of the factors that influence the monthly payment and the total loan amount and are thus included in the computation.
All you have to do to find out how much of a payment you can afford is:
- Enter the right information in the calculator’s fields
- And click the ‘Compute’ or ‘Calculate’ button.
You can find many car loan calculators online, and you can use these free of charge. You may manipulate some of the details to figure out what your options are. For instance, if you want to lower your monthly payment, you may change your loan term or increase your down payment.
Note that the car loan calculator offers a rough estimate, giving you an idea of how much money you need to proceed with the purchase. The figures you get in your computation can be higher or lower than what you can get when you do buy a car.
All car buyers should take advantage of this tool not only to determine affordability (and in turn find the right auto loan) but also to avoid debt they cannot handle. The calculator can help you discover whether or not you can—and should—buy a car.
Many people purchase cars they couldn’t afford and end up struggling with their finances later on. Don’t be one of these people. It is much easier to prevent a financial dilemma than to get out of one. If you are to assume debt, be sure you can shoulder the burden.
Knowing the car payment amount that is just right
According to experts, the monthly car payment should not be more than 20 percent of a car buyer’s take-home pay. Know that this rule applies to all the cars in your home and not just your latest purchase. If there are several cars in your household, the monthly payments of all these must not exceed 20 percent of your paycheck amount.
If after using the car loan calculator and considering the rule mentioned above you find that you can afford to buy, then you may think about purchasing a car and obtaining financing. It would better though if you can spend less than 20 percent of your take-home pay for car payments.
Meanwhile, if the computation suggests that you cannot afford a car, don’t buy—or at least postpone the purchase until you have saved enough money for it.