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You need these responsible set of tips if you plan to buy a used car.
When it comes to buying, for decades, the traditional dealership’s methods have dominated the car sales industry. Millions of American buyers have lost their touch and connection with the old ways of buying a car, being forced to enter this new process of bargaining with salespeople when buying or acquiring the car of their dreams. The process of buying a vehicle from a dealership has remained unchanged, and this contributes to the already negative feelings that exist in the buyer towards the traditional way of buying. Going into car buying unprepared can often contribute to this negative experience when they try to enter the market unprepared or without a clear idea of their credit reach or financial situation.
This is why we put together a list of basic tips that can help you out to reduce the risk of sinking into a financial rabbit hole the next time you want to buy a new car.
What kind of vehicle can I afford based on my income?
The premise is called “responsible spending” and it sounds simple enough in theory, but can be a real headache to execute and end up being much more difficult than it sounds. Especially if you are expecting your next car with puppy-dog-eyes.
A little pre-planning and discipline applied to it will be useful not only for your buy but also for your finances in the long term. A general rule of thumb to follow when deciding how much to spend on your next car based on your current income is the 4/20/10 rule. According to this “list rules to consider when buying a car” of the website interest.com (an independent automotive comparison service), the 4/20/10 rule says that you must:
Make an initial payment of at least 20% of the final amount of the vehicle.
Finance it for no more than four years
Never let your total monthly vehicle expenses (including interest, and insurance), exceed
an amount equal to 10% of your gross income.
Of course, there are financial tools that offer a multitude of approaches to determine how much you should pay for a brand new vehicle, but the 4/20/10 rule is one of the most approved ones and it works.
What does APR mean?
APR is an acronym that refers to the “Annual Percentage Rate”. This percentage measurement rate tells you how much money you will pay for the one that you’ve borrowed. By quoting TheBalance.com: “Think of the APR as the ‘price’ of a loan, which has been quoted in terms of an interest rate.” If you still don’t get it nvm, here’s an example:
Let’s say that you have applied for a $100 loan at 10% APR, if that’s it… you will have to pay $10 in interest for a fiscal year. Plus the debt.
How does my interest rate affect my car loan?
Your credit score has an important impact on the interest rate of all the loans that you can get to pay for any vehicle you want. Your credit score informs lenders how much risk they take when they lend you money. This is why, in theory, the lower your credit score is, the higher your interest rates can go. The other factor that you should take account of is the entire time length of the loan term. Generally speaking, it is common for shorter loan terms to offer much lower interest rates because lenders get their money back faster. The only downside to a shorter loan term is that it gets translated into a higher monthly payment. The year the vehicle was manufactured and the down payment also plays a role. You can get lower rates by buying newer vehicles and making hefty down payments.
While these are not the basics of “financial common sense 101”, acquiring this knowledge can go a long way in alleviating the stress and anxiety associated with buying a new vehicle. Our goal here will always be to help you avoid any financial difficulties or bottlenecks that arise, providing you with tools and resources that will allow you to approach us focused and with a clear plan. This draws the line in your preference to buy with us instead of going elsewhere!