Americans keep their cars for an average of six years; that’s longer than many relationships last. You’ll be more attracted to some cars than others, but base your decision on financial and practical factors to ensure your purchasing decision is sound.
New or used?
A new car comes with fewer hassles. Maintenance should be minimal for the first few years, and the manufacturer or dealer may cover some of those costs. While you aren’t taking on unknown problems with a new car, make sure to determine what features you need – four-wheel drive, four doors, high fuel economy – before you shop.
Calculate what you can afford
Consumer Reports recommends keeping your total monthly payments to 36% or less of your gross monthly income. Use that figure to estimate what you can afford. Factor in insurance costs as well as taxes, title fees and other costs at the time of purchase, which often can be rolled into the loan.
Weigh your loan options
Getting pre-approved for a loan at the highest amount that you can afford may increase your negotiating power with the seller, since you can show you have the means to make a purchase immediately.
Interest rates can vary widely. A lender like Utah First Credit Union has great low rates and flexible payments for either a new or used vehicle. Their people can help with the ins and outs of financing. There are also websites to help you with your decision.
Shorter loan terms keep interest rates down, while a longer term can mean lower monthly payments. As long as you make payments on time, installment loans like auto loans can help you improve your credit. Once a loan is paid off, the vehicle — and the value it holds — are all yours.
Terri Kaufman, NerdWallet
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