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The newspapers are full of them – cars for sale privately (by owner) at prices that are surprising tempting. Often you can find a near-new car for hundreds or thousands of dollars less than you’d pay if you bought new or off the lot.
The trick is to buy a car that meets your needs and fits your budget. To do that you need to consider how much you can afford to spend well before you start scouring the ads. Don’t make the mistake that many car buyers do, which is to fall in love with a vehicle you can’t afford. If you do, you’ll end up disappointed or taking on debt that you simply can’t afford.
To avoid disappointment, sit down with pen, paper and a calculator to see how much you can reasonably spend on a car payment each month. Once you know what you can afford to spend monthly, you can figure out how much you have to spend on a car and how big a loan you can afford.
Consider all your monthly expenses: food, utilities, housing, debts, clothing and savings. What’s left over? Take that number – let’s say $200 per month – and multiply it by the loan term – 36 months for instance. That works out to $7,200. If you have 1,000 to put down you can start looking for cars priced in the $8,200 range.
Extending the amortization over 48 months and borrowing more ($9,600) is always an option, but you have to be realistic about how long the vehicle will last. Nobody wants to be paying loan payments on a vehicle they no longer drive.
Once you’ve calculated how much you can afford it’s time to shop for the best loan terms you can find. Although you can expect to pay a higher interest rate than you would for a new car, there is always room to negotiate. Meet with the bank or credit union you do business with regularly, and then hit the competition looking for deals.
Most lenders will consider several factors when considering your loan application including your credit history, employment information and the age and condition of the vehicle you intend to buy, if you have selected one. Some lenders will do a complete check on the vehicle to ensure it is road worthy and a good credit bet. Others will simply consider your ability to repay the loan.
Take the best deal you can get and then hit the classifieds. And of course – no matter how good a car looks – or how wonderful the sweet little elderly lady selling it seems – take the car to your mechanic before you even think of making an offer. Good luck!
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