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Used Car Financing Advice

Updated on August 8, 2011

Having an Auto Finance Strategy

Do you need to finance a used car? Don't be one of these buyers who fails to take some time to calculate the precise amount of money they should invest in a used car. Ask anyone who has taken on a car loan before - if you neglect to set up a budget, it's all too easy to find yourself in too deep. Problem is, too many people are clueless as to the rules they should be following. That's the reason for this hub - to review solid auto financing strategies, principles, and advice. This stuff is basic - but far too many people neglect to keep it mind.

Income Versus Loan Amount

There is - or at least there should be - a very strong correlation between how much money you make each money and the size of your auto loan.

Let's look at an example state: Wisconsin. Wisconsin ranks 31st as far as income. Consumers in the state bring in $38,050 a year on average. Here's the important part: you'll want to spend only 20% of this amount (your annual income) on a vehicle yearly.

But don't forget, it's important to add to the equation such things as insurance coverage and the cost of gas. To illustrate, a car insurance policy costs Wisconsin residents about $819 each and every year, or $68 per month. After subtracting an additional $100 for filling up at the pump and performing routine service, you have just $403-$466 each month for paying off your auto loan (if you were a typical Wisconsin resident).

How Much Car Can You Get?

Curious about what kind of car will fit your budget with a monthly payment of $466?

This is how much you could afford if you finance for...

  • 36 months: $16,782
  • 48 months: $22,37
  • 60 months: $27,970
  • 72 months: $33,564

But lest we forget, you will need to take into account your interest rate. Of course, you could possibly devote $33,564 during a 6 year period, but the amount you pay to the car loan company could quite possibly make up thousands of dollars of that amount. As an example, for a $28,500 car financed for 60 months at 6% interest rate, you would be required to pay over $4,500 in interest ($33,000 total). If you financed that same car for only 36 months at the same 6% interest rate, you would save about $1300 in interest over the life of the loan.

Down Payment Amounts

How Much Did You Put Down on Your Last Car?

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