How much car can you afford?

Window shopping for cars, whether it’s at a dealership lot or online, can be fun and enticing. It can also lead to an impulse buy if you aren’t careful and purchase more than you can really afford.

But just how much can you afford? The answer depends on your financial situation. Because most people obtain auto loans to buy cars, that purchase will likely have a financial impact to your budget for five years or more.

Here’s some things to keep in mind as you approach the big purchase:

Consider your financial state

Not everyone can afford the high- or mid-level luxury vehicle they want. Even if those payments “aren’t that bad,” it may not be a smart financial decision if those auto loan payments mean you have to skimp on groceries or other essentials. Don’t become “car poor” to have a sleek ride.

If you can afford to pay a little extra per month without hurting your take home pay, then maybe buying the nice car wouldn’t hurt. Take, for example, one of the well-known rules of purchasing a car…

Remember the 20/4/10 rule

Follow these three rules when buying a car: Try to pay 20 percent down during the purchase. Finance the loan term for no more than four years. And limit your loan payments to no more than 10 percent of your monthly income. Paying 20 percent down means you more than likely won’t be upside down on the loan when you start making payments. Choosing a four-year term means you won’t accrue more interest than you need. And sticking to a maximum of 10 percent of your income means you won’t burden your budget with too high of a car payment.

Think about what you need

Consider why you need a car, or a truck, or a van. If you’re a boat owner, purchasing a truck or SUV that is capable of towing it would be a big selling point. If you have a long commute, then you might want to invest in a hybrid or high-gas-mileage vehicle. Always think about your needs for the vehicle instead of your wants for it. Then think about what you can afford from there. Before you step into an auto dealership, step into a Travis Credit Union branch and get prequalified for an auto loan. By knowing how much car you can afford, you’ll have more confidence in your car search and more likely won’t overspend for it. Visit www.traviscu.org for branch locations.

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