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Buying a car — and financing one — is a major decision. It’s important to determine how much you’ll be able to afford before you make a commitment.
These tips can help you understand how much you can afford for your monthly payment, down payment, and other costs associated with buying a car.
Before signing on the dotted line, determine your monthly payment, how it’s calculated, and if it’s affordable. These three steps can help:
One of the biggest questions is, “How much should I put down on the car?” If you lease, you may not need a down payment at all. If you buy, it’s likely you’ll need a trade-in, a down payment, or possibly both.
To determine an affordable down payment, first assess your financial situation:
Remember, the more you put down, the lower your monthly payment will be. While some experts recommend putting down 20% on a car, the national average is 11%, according to Edmunds.com.
A few other costs factor into the total cost of ownership. The first is insurance. You’ll need to purchase auto insurance whether you buy a new or used car, or lease a car. Because insurance is based on the value of the car, rates are generally lower for used cars. But if a new car has certain safety features, insurance rates may be lower. Learn more about how you can save money on auto insurance.
A second cost to consider is preventative car maintenance, including regular service checks, oil changes, unexpected repairs, and other upkeep.
Financing a car is a big expense. If you consider all costs, including your down payment, monthly payment, insurance, and maintenance costs, you’ll be in a better position to calculate how much you can afford. Learn more about vehicle financing.
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