An important factor in the recent U.S. auto market deterioration, the number of people who took the car loans they could not afford. While they are upside down on a car loan is nothing new, in 2010, 21.8 percent of Americans who bought a new car had an average of $ 3,789 in negative equity on trade, according to Edmunds data.
How to get the consumer at this point? An incessant barrage of new car advertisements on radio and television do not help matters. The siren song accelerating engines attracted people in dealerships, where the liberal lenders encouraged them to check their wallets - and their sanity - at the door.
Fortunately, our calculator, How can I pay?, Avoid getting in over your head when you buy a new car. By entering some basic, simple but powerful tool that can help you with an estimated price range in which to shop.
ZIP Code — Used to calculate taxes and your finance rate; both vary regionally.
Your Target Monthly Payment — What you can afford to pay each month. Unlike car ads, this number includes tax, title and registration fees that would be included as part of your total loan. Edmunds recommends that these payments do not exceed 20 percent of your monthly after-tax income. This figure doesn't include gas, insurance or maintenance, which you can factor via our True Cost to Own® (TCO) calculator.
Loan Term — We recommend sticking to the typical 60 months. A shorter loan will make your payments higher. Longer terms, while they may lower your monthly payment a bit, don't justify the jump in the cumulative interest you'll pay over time.
Market Finance Rate — The prevailing interest rate charged by lenders to consumers who fall into the second-highest credit tier (which encompasses the majority of the car-buying population). If you can get pre-approved for a better rate from a lender, input it here.
Value of My Trade-In — This assumes that, if you have a car, you are trading it in to the dealer who is selling you a new car. If you were to sell it to a private party, though, you would get more money to put toward reducing your new loan amount. Our Used Car Appraiser will tell you what your car is worth in both scenarios.
Amount Owed on My Trade-In — The amount still owed on the current financing, if any, on your trade-in. The difference between the trade-in value and the actual payoff on the trade-in is treated as a credit or debit against the new vehicle. To determine what you owe, you can call the number on your bill, or you can multiply your payment amount by the number of installments you have left before the end of your contract.
Cash Down Payment — Lenders are demanding higher down payments than before. Try to put down as much as you can afford; shoot for at least 20 percent. This reduces the size of your loan and thus your monthly payment.
Total Down Payment (with net trade-in) — This is the total of your cash down payment plus your trade-in.
Estimated Price Range — This is your "final answer," the range of sticker prices in which you should shop. Since most cars can be purchased at a discount from the MSRP, we provide a price range. Finance a car whose MSRP is at or under the top number, and you should be within the range of what you can afford each month.
We encourage you to play with the car affordability calculator by changing the inputs to see how they affect one another. This is actually a lot of fun and a great way to learn about financing. The answers you get might be humbling, and you may decide you'd be best off financially if you choose a car in a lower trim, a less expensive model or even a used car. If you follow these guidelines, you'll end up not only with a car you can afford, but also peace of mind.
How to get the consumer at this point? An incessant barrage of new car advertisements on radio and television do not help matters. The siren song accelerating engines attracted people in dealerships, where the liberal lenders encouraged them to check their wallets - and their sanity - at the door.
Fortunately, our calculator, How can I pay?, Avoid getting in over your head when you buy a new car. By entering some basic, simple but powerful tool that can help you with an estimated price range in which to shop.
ZIP Code — Used to calculate taxes and your finance rate; both vary regionally.Your Target Monthly Payment — What you can afford to pay each month. Unlike car ads, this number includes tax, title and registration fees that would be included as part of your total loan. Edmunds recommends that these payments do not exceed 20 percent of your monthly after-tax income. This figure doesn't include gas, insurance or maintenance, which you can factor via our True Cost to Own® (TCO) calculator.
Loan Term — We recommend sticking to the typical 60 months. A shorter loan will make your payments higher. Longer terms, while they may lower your monthly payment a bit, don't justify the jump in the cumulative interest you'll pay over time.
Market Finance Rate — The prevailing interest rate charged by lenders to consumers who fall into the second-highest credit tier (which encompasses the majority of the car-buying population). If you can get pre-approved for a better rate from a lender, input it here.
Value of My Trade-In — This assumes that, if you have a car, you are trading it in to the dealer who is selling you a new car. If you were to sell it to a private party, though, you would get more money to put toward reducing your new loan amount. Our Used Car Appraiser will tell you what your car is worth in both scenarios.
Amount Owed on My Trade-In — The amount still owed on the current financing, if any, on your trade-in. The difference between the trade-in value and the actual payoff on the trade-in is treated as a credit or debit against the new vehicle. To determine what you owe, you can call the number on your bill, or you can multiply your payment amount by the number of installments you have left before the end of your contract.
Cash Down Payment — Lenders are demanding higher down payments than before. Try to put down as much as you can afford; shoot for at least 20 percent. This reduces the size of your loan and thus your monthly payment.
Total Down Payment (with net trade-in) — This is the total of your cash down payment plus your trade-in.
Estimated Price Range — This is your "final answer," the range of sticker prices in which you should shop. Since most cars can be purchased at a discount from the MSRP, we provide a price range. Finance a car whose MSRP is at or under the top number, and you should be within the range of what you can afford each month.
We encourage you to play with the car affordability calculator by changing the inputs to see how they affect one another. This is actually a lot of fun and a great way to learn about financing. The answers you get might be humbling, and you may decide you'd be best off financially if you choose a car in a lower trim, a less expensive model or even a used car. If you follow these guidelines, you'll end up not only with a car you can afford, but also peace of mind.
Article Source : Edmunds
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