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Try These Tips To Ensure You Don’t Overspend On Your Car

New wheels often bring thoughts of great deals.

But before you head off to the dealership to start haggling about which car, what color, which trim, and at what price, consider this:  Can you actually afford a car?

U.S. consumers owe more than $1 trillion in car debt, a figure that takes into account the highest loan amounts and the monthly payments attached to those loans. Too-good-to-be-true financing options make it easy to overspend on a car; not surprisingly, loan delinquency rates are on the rise.

Cars costs can be prohibitive, making the joy of driving something that drives you to regret. Consider the following when trying to decide how much to spend on your next car, new or used.

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Determine What You Can Afford To Spend

Knowing how much money you have available to purchase a car and make the subsequent payments is essential to not overspending. Some car buyers build their car budget around industry standards; in general, best-practice advice tends to estimate payment amounts between 10 percent and 20 percent of your monthly take-home pay.

You can, however, choose to ignore the industry standard to prescribe a set percentage of your budget, and instead assess your existing spending to determine how much car payment you can afford. By looking at your current spending levels on everything from bills to vacations and anything in between, you’ll get a sense of how much car you can afford and when you can afford it. If you decide you’d like to purchase a more expensive car, you can plan to cut costs elsewhere in your budget to make that a reality.

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Look Beyond The “Sticker Price”

That price tag dangling from the car window is only the beginning. After the initial purchase, you’ll be responsible for car insurance, routine maintenance, emergency repairs, and gas. Considering all of these expenses can help you determine whether or not you can afford the car’s purchase price, and might lead you to consider buying a less-expensive model, which would leave you more money for car costs that might come down the road.

If you plan on financing your vehicle, shop around for deals that offer the best interest rate. After reviewing all of the loan terms, determine how much you’ll actually end up paying overall for the car; you might be surprised at how much a car ends up costing when you add up interest rate over the life of the loan.

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Think Ahead

You might not be heading to the local car lot to make a purchase today or even tomorrow or the next few months, but chances are you’ll be looking for a car at some point in the future. Planning ahead for this significant purchase can put you in the best position to make a wise decision.

Keep an emergency fund on hand that can cover up to six months of expenses in the event of unexpected occurrences such as a job loss, illness, your car breaking down, or getting into a car accident that totals your vehicle. An emergency fund enables you to weather difficult financial situations without long-term financial repercussions. As a line item in your budget, an emergency fund should be separate from money you’re already saving for such things as a house, vacations, or your kids’ college education.

It’s also important – very important – to keep your credit score in good standing, especially if you’re planning to finance your vehicle. Your credit plays a significant role in determining how high the interest rate will be on any car loan you take out. Your credit score can even be a deciding factor in whether you receive a car loan at all.

You can maintain a good credit score by decreasing your level of debt, paying bills on time, and increasing your income in order to improve you debt-to-income ratio. Good credit is earned over time, so it’s important to take steps to put your credit in the best possible light before you decide to head to a car dealership.