How much can I afford to pay for a vehicle?

When you are thinking about buying or actively shopping for another vehicle, new or used, it is helpful to know how much you can afford to pay for it. You will most likely finance a portion of the vehicles cost, but where will the other portion come from? You need to determine how much money you have for a down payment. Trading in your current car or selling it can make up the rest of the amount. To decide how much you have for a down payment do the following:

• Examine your savings and other cash assets, determine how much of it you are willing to part with as a down payment on your next vehicle
• If you have a vehicle to trade in, get it detailed then take it to a few dealerships for appraisal as a trade in. Also look online and determine the private sale value to see if it would be advantageous to sell it that way. Now subtract from the appraised value, the balance you still owe on the loan for this vehicle.
• Add the values determined by your savings and trade in vehicle. This is the amount you can afford, before financing.

About the Loan

You will need a loan to cover the remainder of the vehicle's cost if the vehicle you choose is more than you determined above. The best auto loan will have reasonable rates and an affordable monthly payment. Before applying for a loan, sit down and go over your finances, asking yourself these important questions:

• If you have a current payment on a vehicle you are trading in, how much is it? Is it affordable and can you handle more or need to pay less?
• If you do not have a current loan or are purchasing a second vehicle. Determine what you are already paying into bills each month, what is left over and ask yourself how much more you can part with comfortably.
• Is paying the loan down quickly important to you? If so, after determining how much you can afford to pay, make up your mind to get a loan for less than that amount, so you can pay more than the minimums, or take a shorter term loan.

The final step in determining how much you can afford to pay for a vehicle is to apply for loans with creditors and find out how much they are willing to lend you.