Buying a new vehicle is a commitment, especially if you plan to get a loan and your previous vehicle has been paid off for a while. The last thing you want to do is test drive a car and fall in love with it, just to find out it’s way out of your price range. Here are 4 things to determine before you go car shopping.
- Can you afford to put a down payment?
If yes, it could have one of two benefits: if you decide to go with a more practical car, you will end up paying less in interest and have either a shorter term or a lower payment; or, if you decide to get a nicer car, you could get the same loan amount you would have if you didn’t have a down payment.
If no, the car you can afford will be limited by whatever your monthly income is.
- Do you want to buy new or used?
A new vehicle has warranties, but a used vehicle is much cheaper, even if it only has 10,000 miles on it. Weigh the pros and cons and decide which is best for you and your needs.
- Are you buying from a dealer or private party?
Vehicles tend to cost more when you purchase from a dealer, but your chances of buying a legal, accurately documented vehicle are higher with a dealer purchase. There are benefits to both sources, and you’ll need to decide which one you prefer.
- Are you likely to be approved for a loan, and if so, how much?
This depends entirely on your income and credit score. If you have only one-income household and a lot of loans, you will likely not qualify for a large loan. If you are a two-income household and you have very little debt, you will likely qualify for a larger loan
*NOTES: These examples are based on loan terms of 60 month with no down payment that would put the person(s) at 39% DTI, and the “up to” loan amounts would include the cost of a vehicle and all fees associated with a vehicle purchase. Although loan approval is based on credit score and DTI standards, there are extenuating circumstances for which lenders can sometimes make an exception, so even if the "denied" example above looks like it fits your situation, there is a possibility that your circumstances can be accommodated. Adversely, the MTEFCU cannot guarantee a loan will be granted to any individual who fits any of the "approved" examples above, as there are also sometimes mitigating circumstances that can prevent loan approval. The best way to find out if you personally qualify for a loan, regardless of the examples above, is to contact one of our loan officers.
Buying a vehicle can be stressful, but understanding the financial side can help to lessen that burden. If you are stuck on #4 and need help figuring out how much of a loan you would qualify for, call or email one of our loan officers!