I Need a Car Loan

Car loans are generally paid off in monthly installments, so now that you have your finances in order you can easily figure out how much of your car loan you can pay off each month. The good news is that you don’t have to do all the math yourself. There are plenty of online calculators to determine what works for you. Here are a few:

• Bankrate Home Budget Calculator: Input monthly salary, taxes and expenses to see what’s left over that could be used toward a car payment.
• Edmunds True Cost to Own Calculator: Plug in year, make, and your ZIP code to find the true cost of owning many popular car models.
• AWARE Monthly Budget/Affordability Gauge: Enter monthly income and expenses into this detailed, interactive Excel spreadsheet, and then plot out all costs related to the car you want to buy to see whether you’d have enough to cover them.

If you would rather do this by hand, the Federal Trade Commission’s Consumer Protection division, a consumer fraud watchdog, recommends creating a spending plan. Use the budget you just made to follow these basic steps:

•    Start with your monthly take-home pay, that is, salary minus taxes and deductions.
•    Subtract rent or mortgage payments, savings and investments, monthly expenses such as utilities and food, and other credit card or loan payments.
•    The remainder is the maximum amount you have available for a car payment and related expenses. LV suggests you limit your monthly spending on a payment and all other car-related expenses to no more than 20% of your total monthly household budget, or 36% of your gross income.

If you don’t have room in your budget for the car loan payments you calculated, now is the time to find places where you can cut back on your general expenses and/or find a less expensive car to buy. 

Today, the average length, or “term” of a loan, can stretch to 72 or 84 months. We will discuss this more in Step 6.