Seldom are you able to go where you want to and do the things you want to do without a car. You need to buy a car, much sooner rather than later. But whether financial matters are your strong point or not, it’s quite difficult to know what the lenders are looking for when you apply for a car loan. You find yourself Googling, ‘How much car can I afford’ in hopes that your magic answer is much simpler than it seems. Unfortunately, for most people the answer isn’t clear at all. And to complicate matters, there’s other responsibilities in life that get in the way. A mortgage payment that’s higher than you wanted, an unexpected insurance deductible or speeding ticket – you hadn’t counted on those costs. Cash is tight, but the need for a car isn’t going away.
How Much Car Can I Afford?
To help you determine the answer to your question, we’ve come up with a few suggestions or tips.
Look for the newest car at the lowest price.
When a lender checks a car loan application, they’re looking for a secure loan. A newer car has fewer issues that could cause you to walk away from the loan, and it’s a vehicle they can recoup their costs on the easiest. Find a used car that is within a few model years of new for your best chance at getting approved.
Get a down payment together.
It’s not easy saving money, but it’s rewarding when you do. A down payment does more than just lower the selling price. It proves to a lender that you’re assuming part of the risk of your car purchase, so it’s a safer bet for them to engage. Just $1,500 to $3,000 down payment can increase the amount of car you can afford by up to $10,000!
Determine your Debt-Service Coverage Ratio (DSCR).
At its core, it’s the amount of cash flow you have available to meet your current financial obligations. To qualify for an auto loan, you need your net income to outweigh your commitments each month, with room to spare. Each lender is slightly different, but with car payments included, you should have at least 40% of your income available beyond your commitments.
Will it interfere with your lifestyle?
If buying a car puts a cramp on your ‘style, it’s probably not a great idea. Human tendency is to continue with habits, and that can be a problem if your habits are costly. A car loan could stretch you too thin, making you susceptible for missing payments. That’s not a good thing at all.
Is there still room for the unexpected?
Groceries cost more, and inflation grows faster than your paycheck increases. If your expenses suddenly increase, will your car payments put you in a bind? Make sure you have the flexibility in your budget for unexpected costs. If the answer to ‘How much car can I afford’ is a positive one, that’s great news! At CarUp KC, we’d love to help you get into a car that you love. We have an excellent selection of pre-owned cars at affordable prices with something to fit every budget. Stop in today or give us a call to find the car that’s right for you.