How to budget for your next car purchase

Posted by LauraDerb on January 3rd, 2021

Auto loans can be very expensive if you go out of business with a bad deal, which is why you should find the right lender and the right loan before deciding to buy a car.
As the experts seem to do with any topic, they disagree when it comes to budgeting for a car purchase. Considering all the different points of view, the general consensus seems to be that car payments shouldn't cost more than ten percent of earnings. The cost includes gas, insurance and maintenance.


After deciding on a price range, the next decision to make is to what extent the car should be financed with auto loans, either in part or in full. Buyers often go for long payment plans just so they can lower the down payment. However, should a situation arise where they want to change the car after only one year, the subsequent debt could even exceed the total value of the car.

This is not in the least desirable. To avoid this possibility, a helpful and quick rule of thumb is to always finance less than 80 percent of the actual cost or the dealer invoice. As for the remaining 20 percent, it must be paid in cash or in shares that you can obtain by exchanging an old vehicle in your Autoankauf.

Dealers are good at selling cars, not loans

Too often you hear about car buying scams. Therefore, you need a cautious approach when buying your car. You may be suspicious of used car dealers and prefer to seek the best value and integrity. The same caution should be observed with auto loan agreements for the purchase of automobiles. The usual procedure involves the dealership directing the buyer to the company's finance department to reach an auto loan agreement.

Dealers primarily offer more flexible credit requirements than banks, and sometimes push for lower-rate financing arrangements. These auto loan options may seem attractive at 3 percent interest rates, but they may only be for private car models or short-term auto loans. Caution is also advised to dealerships selling auto loan options, as they mostly make huge profits on financing whether it involves the vehicle manufacturer or not.

Double negotiation

When purchasing a car, always be sure to negotiate the price of the vehicle before announcing that you plan to finance the cost of the car. Dealers may also try to mistake you for lower financing rates for higher priced vehicles or offering a car at a lower price but with a higher financing rate.

It is absolutely acceptable to negotiate better auto loans because dealerships primarily involve several different loan sources, including the manufacturer's credit company and local banks. Each of them can offer different rates to the dealer. Therefore, it is always better to examine your options for auto loan rates and other financing options rather than buying a car and then deciding the rate at the dealerships.

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