How to Calculate Your New Vehicle Payment
You've decided that it's time to buy a new car. That's great! Before you head out to our dealership, though, there are some things you should know about how much your new vehicle will cost—and calculating those numbers isn't as easy as picking the first number that pops into your head.
We'll walk through all these factors below so that when you're ready to make an informed decision about buying a new ride, you'll know what to expect from each option and how much money it will cost every month once everything is said and done!
Determine Your Down Payment
A down payment is the money you put down on a vehicle. You can also call it your equity because it's the money you'll be putting into the car.
A typical down payment is between 5% and 10% of the purchase price of your new car. With a small $500 down payment, your vehicle will have little equity when it comes to time trade-in or sell. However, if you have bad credit and can't afford to pay 20% or more outright—and therefore must finance it—you may only be able to get away with putting down $500 (or less).
If you have poor credit and need a car loan, you can expect to pay a much higher interest rate than someone with good credit. A high APR means that your monthly payments will be higher as well.
If you can afford to put down a more considerable amount, like $5,000 or more, you'll get a better interest rate on your car loan and lower monthly payments. This means that even if you're buying a brand-new vehicle with high monthly payments, putting more money down will help minimize these costs and get them down to more manageable levels.
Use a Loan Calculator
Use a loan calculator to calculate your monthly payments before looking at cars. You should know how much you can afford to spend on a new car before shopping for one, since this will help determine the kind of vehicle and features within your budget.
If you put more money down when buying your car, the interest rate will be lower because of better credit history and higher credit score. So aim for at least 20% down when purchasing any vehicle (and do this if you aren't paying cash).
You can also save money on your car loan by getting a reasonable interest rate. The better your credit score, the lower the interest rate you'll likely receive.
Generally, your interest rate will be higher if you have bad credit. If you have good credit, the interest rate on your car loan should be lower than for the average person with poor credit.
You must work on your credit score before applying for a car loan if you have bad credit. You can do this by paying off any outstanding debt and ensuring your bills are paid on time. Getting an annual credit report from each credit reporting agency (Equifax, Experian, and TransUnion) can also help you see where you stand with each company.
New or Used Cars?
As you compare new and used car payments, remember that a new car will always be more expensive. However, the upfront cost of buying a new vehicle is often offset by lower monthly payments.
A brand-new car will also have a warranty from the manufacturer (or at least it should). The manufacturer will cover any repairs or replacements if your vehicle goes wrong after buying it.
If you go with a new vehicle and choose not to purchase an extended warranty through one of your dealer's financing options, then make sure that regular maintenance on your car is part of your budget! If it isn't included in your monthly payment plan (such as via an auto loan), make sure you have enough money each month set aside toward routine upkeep such as oil changes or tire rotations—otherwise, those costs could add up quickly!
Calculate Your Trade-in
When your dealership or lender offers you a new vehicle, the price is almost always based on a trade-in allowance for your old car. A trade-in allowance is the value of your current vehicle after deducting any outstanding loans and fees. It's based on the vehicle's Kelley Blue Book value, which is determined by considering multiple factors such as its make and model, condition, mileage, and features.
To calculate how much your current car might be worth if you don't want to trade it in:
Find the car's Kelley Blue Book value online.
Use the vehicle's make, model, and mileage to search for similar cars.
Calculate Your Costs
Always include the cost of your insurance, taxes, and registration fees in your calculation. Don’t forget to include gas if you drive a lot or live in an area with high gas prices. Maintenance costs can vary significantly based on vehicle age and miles driven, so make sure you know how much money those will be before deciding how much to borrow from the bank or credit union.
It's important to use real numbers when calculating your car payment, including all fees and expenses, so that you don't get into trouble purchasing something you cannot afford over time. It's also critical to be honest about what kind of vehicle payment fits into your budget, even if it means cutting back on the options list and waiting longer until finances allow for more luxurious purchases!
Time to Buy
Understanding all the factors that go into purchasing a vehicle can be challenging, but we’re here at Bayou Chrysler Dodge Jeep RAM to help make it as simple as possible. If you have questions or concerns at any time, please contact us!