Car Loans
How can I determine how much I can afford to spend on a car?
The first thing is to work the payment into your budget. That's really critical. Because, obviously, you are probably going to finance the car so you are going to have to know how much you can afford to pay each month. You can use some online calculators. One at Kipplinger.com for example can help you do that. How much money can afford to fit into your budget? The other thing that is really critical to do is get pre-qualified for a loan. That is, go to your bank, go to your credit union find out what your credit score is and how low of an interest rate you'll qualify for. First of all, that will help you figure out what that monthly payment is going to be and you can know whether is it going to fit into your budget. But also, when you go car shopping and the finance people at the car dealership try to sell you financing, then you will know if they are quoting you a higher rate than you can get if you went and found financing on your own. Of course, it is the price of the car plus the financing that really determine the monthly payment.
Should I buy a new car if I still owe money on my current car?
You certainly can buy a new car if you still owe money on your current car. The lender will be happy to roll both loans together. But, of course, what's going to happen is you're going to be owing more money, so you're going to be further in debt if you buy a new car while you still owe for your currennt one. From a sheer debt point of view, it's probably not the smartest thing to do.
What is an ideal term for a car loan?
The ideal term for a car loan is probably the shorter, the better. Nowadays, cars are so expensive and people are paying so much for their cars that sometimes the average car loan term can be six years or more. Realistically try to stick to three or four years, because that's what makes sense. If you go on much longer than that, what's happening is you're paying so much in interest that you're really paying much more than the car's worth, and you actually may end up owing more on the loan than the car is worth. And you definitely don't want that to happen.
Can I refinance my car?
You can refinance your car, but the question is would you want to refinance your car? The real reason for refinancing your car, as with any loan, is that you can actually get a loan with a lower interest rate. So it kind of depends on what's going on in the market. If you can actually get a lower rate than you have now, yeah go for it. But if rates have gone up or they are the same then it doesn't make any sense to do it.
