Can I Afford A New Vehicle?
There are many factors to consider when purchasing a vehicle – most of which consumers pay attention to are related to the vehicle itself, rather than the financing.
Whenever you’re thinking about purchasing a new vehicle, figuring out whether you can afford it or not can be complex. Working with a lender/financer, whether it’s your bank or credit union, or the dealership itself, can be confusing and tedious. Oftentimes you feel left in the dark about whether you can afford what you’re about to purchase.
This is why we’ve put together 4 basic factors below that can assist you in answering this question for yourself – Can I afford a new vehicle?
- Debt-To-Income Ratio
Your Debt-To-Income Ratio is a percentage that calculates how much monthly debt you have in relation to your income.
It is recommended that your monthly DTI ratio not exceed 45%.
This ratio gives lenders (and you) a better idea of whether you could afford to take on another monthly payment, and if so, how much of a payment you can handle.
- Credit Score
While your credit score doesn’t directly tell you how much you can afford for a new vehicle, it will be the leading factor that determines your interest rate and term options from lenders.
In turn, it will impact your monthly payment options and can then affect how much you can afford to borrow.
- Term & Payment Options
Once you decide on a term length and know roughly the monthly payment you’d be comfortable with, you’ll get a better idea of how much you can finance in total.
Given those data pieces, the ‘backwards math’ can then calculate the total amount you could finance while maintaining a good DTI ratio.
You can follow the link below to an online calculator that will help you determine how much you can afford to finance.
- Trade-Ins & Down Payments
Consider and calculate how much you think you can contribute to the new vehicle purchase factoring in trade-ins and down payments. Doing either of these, or both, will defray the cost, which will lower the amount you need to finance/borrow from the lender/financer.
Don’t forget to also consider the fees associated with the purchase and how they could affect how much you can finance. A sticker/base price you see on a vehicle is never the price you end up paying due to fees such as processing fees, title & registration, tax, etc.
Once you’ve figured out how much you can afford to finance, TUMCU would love to help you with your next vehicle purchase. We have incredible interest rates, and we can service your loan in a matter of minutes! You can apply for financing with us by following the link below.
Posted by Parker Eads in Uncategorized.