There is almost nothing in life that can be as exciting as buying your first used car. Being able to choose the car of your dreams is a very emotionally satisfying thing to do — but not having the funds to afford it isn’t very powerful at all. Before you hit Ride Time to check out the fantastic used car selection, it is a good idea to figure out how much you have to spend. That will ensure that you don’t find yourself in love with a car that you simply cannot afford.
Knowing what you can realistically fit in your budget isn’t just a matter of knowing how much you can borrow, but also about how much you can borrow without jeopardizing your finances. Sometimes people underestimate the cost of the little extras that go into financing a used car and think they have more in their budget than they actually do. You don’t want to find yourself in the red every month, which could put you in a serious financial bind.
What type of loan is it?
Before you can calculate how much you will pay monthly on a used-car loan, you have to consider the type of loan that you wish to take out. You will have to use different formulas and calculations for the loan types. You can choose to either take out an interest-only loan or an amortization loan. An interest-only loan means you are only pay the cost of borrowing the car; you never pay towards ownership.
Another option is an amortizing loan. In an amortized loan, you pay the amount of the loan monthly over a set timeframe. Once you figure out which type of loan you want to pursue, then calculating your monthly payments can be as easy as using Google Sheets or Microsoft Excel. They have the formulas you will need to break the loan down for you to see how much you can afford to pay for a used car from Ride Time.
Be careful, though. If you calculate your loan amounts by yourself, remember that it is just an estimate. When all is said and done, the amount might be slightly off from what you anticipate, but at least it will give you some parameters.
Other factors you have to consider
Although your monthly payment will be very important in determining which car is right for you and how much you can borrow, it is not the only consideration you need to make. If you are going to finance a used car, then it is crucial to not only know the purchase price but also to realize how much you will be paying for your car over the span of the loan that you take out.
Your monthly payment is simply a calculation of the interest rate, your loan amount, and the length of your financing. So although you will want to find the right used car to fit into your monthly schedule, you shouldn’t choose your car based solely on what your budget affords. If you take out a long repayment term, then you will be paying a much bigger purchasing price when you end up paying it off.
If you are going to negotiate, then you will want to do so on the purchase price, without considering the monthly payments. When you stretch out your loan for a long time, in the end you end up paying way more than the used car is worth, and you run the risk of being upside down at some point. If you are upside down on your used-car loan, then you will lose money when you go to sell or trade it in.
To calculate how much you can afford to pay monthly it is a good idea to know what your financials are and then choose a car based on what you can afford. That way you will pay a reasonable price for the car, make sure that you have the means to pay for it, and you can choose a car that is spectacular but not outside your means. Ride Time can help you work with your finances and find the right used car and loan to fit into your budget comfortably. Come in today to check out our excellent inventory, so we can help you get behind the wheel of your dreams!