How to Create a Budget for a New Auto Loan
Whether it’s time to trade in an older model or increase the amount of passenger seats and towing capability with your vehicle, adding a new auto loan to the budget may involve making adjustments. Consider these steps to create a budget for a new auto loan before hitting the dealerships and taking a test drive.
1. Review Your Current Budget
If it’s been a while since you’ve reviewed your monthly budget, this is a great time to revisit where your dollars are going. Start with the amount of money you bring home monthly, then subtract your fixed monthly expenses. Think about itemizing your necessary expenses (rent/mortgage, debt repayment, food, savings) and the miscellaneous expenses (entertainment, subscriptions, retail “therapy”). Any money left over could be put towards your new vehicle.
What should you consider towards an auto section for your budget? The costs of owning a vehicle go beyond the down payment and monthly costs of the vehicle itself. Some areas to consider for your monthly budget:
-Auto Insurance. This cost may fluctuate depending on the insurance company and the make/model of the vehicle you’re interested in purchasing.
-Taxes. Some states require additional taxes to be paid toward your vehicle. Look into your state’s requirements beforehand.
-Car Maintenance. Aside from the more regular oil change and tire rotation expenses, consider setting part of your auto budget to go towards emergency repairs or annual upkeep maintenance, such as new tires.
Try our free budget tool to get started.
2. Make Budget Adjustments to Help Create an Auto Section
Budget looking a little tight? Take a look at cutting down or out some of your miscellaneous expenses. Miscellaneous expenses are things you typically pay each month, but could do without. As you write out your miscellaneous expenses, ask yourself whether you can cut or specific ones in order to help grow your available dollars for a new vehicle.
Check out our “How Much Car Can I Afford” financial calculator to break down the possible payment schedule.
3. Check Out Your Credit Score
Part of the monthly installment payments for any auto loan includes an interest rate, which is determined by your credit score.
So what does a good credit score look like? A typical credit score range is between 300-850. 62% of Americans have a credit score of 650 or higher. It is generally true that the better your credit score, the less interest you’ll have to repay—creating a more affordable monthly auto payment.
Watch our quick Car Buying video to learn more about how credit scores can affect your overall monthly payment.
4. Consider a Possible Trade-In Value
Thinking about using your current vehicle to trade-in at the dealership? Take stock of your current vehicle’s condition and possibly taking it to a trusted mechanic or auto appraiser to look at it to have a better understanding of the value prior to a trade-in conversation.
