Understanding Your Monthly Car Payment | Luther Kia


For most car buyers, paying in cash for a vehicle isn’t an option. Car loans are a part of life for the majority of drivers and sometimes they can be confusing or overwhelming.


Before taking the plunge to finance a purchase as large as a new vehicle, it’s important to take the time to make sure you understand what exactly you are signing off on. If you work with a financial department like our great finance team at Luther Nissan Kia, they will work with you to figure out your best payment schedule and get you on a plan that works with your budget and also get you the best loan for your current financial state.


Loans are an amazing tool to get you the things you need when you need them, but they obviously come with a little catch – interest. That means that the amount you end up paying for the car will be higher than the price of the car agreed upon by you and the sales associate. That difference is determined by what kind of loan you are able to get based off your credit score and other factors and how long you choose to finance your new vehicle (the longer you stretch it out, the more interest you will pay; the shorter the term, the higher the payments).


Thinking about this is an important step in deciding if you are ready for a new car and the costs that come with it. When you have determined that it is time, it is then important to consider your budget and plan what it is that you can spend on a car payment every month. The finance department can help you with this part a little bit, but you need to know where your limit is and also what sort of questions you have so you can leave the office confident in your decisions.


Using a Car Loan Calculator

A great tool to use when deciding what type of car you are looking for and what you can afford is a car loan calculator. You can use one of these on our website by selecting a car and then clicking “Personalize Payment” to input information such as your trade-in value and down payment. This is a simple, risk-free way to test out different payment scenarios before going in to talk financing when you are ready to buy. It won’t be an exact number, but it will work wonders to help give you a solid idea of where you stand and what you can expect to pay.


A good rule of thumb to follow when thinking about car payments is that it should be no more than 20 percent of your take-home pay (income after taxes), including your car insurance premium. Keeping your automotive expenses in a reasonable range will help ensure that you can make your payments for the duration of the loan and still have money for your regular living expenses and any surprise expenses along the way. A lot can happen in 3-5 years (the typical length of a loan) so it’s smart to do everything you can to stay smart from the beginning.


Being Smart about your Down Payment

The most important part of calculating a car loan (other than the interest) is probably the down payment that you will make on the car before the loan comes into play. The higher the down payment, the better. This is because the more you pay on your new car, the less you will have to finance and the less you will have to pay in interest over time.


Edmunds.com recommends making a 20% down payment if you can. (In 2011, the average was 11 percent.) If your current car can make it just a little longer, it might be a good idea to hold off on getting a new one while you save up a little more cash so that when it’s time, your down payment will pack a bigger punch.

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Every car-buying scenario is different and every person has different needs and wants. If you want lower payments month-to-month, a longer loan might be right for you. If your friend would prefer getting out of a loan faster to avoid paying more interest, a shorter loan might be his or her preferred route.


That’s why it’s important to do your research and take a look at your budget to determine what path you can and want to take. When the time comes to sit down and talk with a finance specialist, ask them plenty of questions and take the time to discuss your options so you drive away feeling good about your choice and your new purchase.


Check back next week for Part Two of this series to learn more about interest and amortization on your car loan. (You’re going to want to read it if you plan on buying a car.)
Tags: Loans, Car Loans

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