Buying Car Tips- Finance
Finance a car is very important. If you can bargain $1000 off the MSRP, you can also give them back by finance the wrong way.
How much can you finance:
Your car’s OTD price should be equal or less than your annual gross income. Ex. If you are going to have a $30000 car, you better make at least $30,000 per year. Don’t forget you still need 20% down.
Example is an IS300 new. $30000 OTD. Purchasing interest is 3.9% for 60 payments.
You pay $30000 for the car and you drive it home. It is easy. You can also save money on insurance. I bet most people wont save money on insurance anyway.
My suggested down payment is 20% which is $6000. Most people who can pay cash are having good credit. The rest $24000 will be paid in 60 payments at $441. If you invest this $24000 wisely, you will have return at 5% (easy) comes $30801. Your total car payment in 5 years will be $264000. The difference is what you actually can save. This is very basic calculation. The rule is not to put all the cash into something that does not write off tax and does not have good future value.
$0 down is never to be a good option. You are financing the destination fee and tax which is have nothing to do with the car. When lender look at your loan structure, they more you put down more you will be able to get good deal. At some extreme conditions such as the car have high depreciation rate, your best move is to put less down but never to be $0.
To some economic cars, 10% is a good starting point, since it is a $15000 car lender will not be so excited about it.
If you just graduate from College or about to graduate in next 4 months, you can take advantage at a program for college graduates. You can receive up to $1000 cash towards down and lower interest. If you are in Army Services, there will be a program for you as well.
First time buyer:
There are lots of financial institute will finance a first time buyer especially a credit union. If you can show a good income and a good employment history, you can be financed. A big chunk of down payment will be very helpful. If you have an approval letter from a credit union for $24000 at 9.9% per year for 5 years. You are very likely to get same loan for 7.9% at dealer. Manufactory’s finance will normally beat banks for 2% to earn your business.
Debit to income ratio:
It is a number that bank will look at when you finance a car and house. It is your total monthly payment (credit cars, cars and mortgage or rent) / monthly earning before income tax. I prefer doing by monthly net income.
Your car is supposed to be ¼ and less of your monthly cash income to cover everything. Your mortgage supposes to be 1/3 of your gross income. This ratio is also a factor that decides your interest rate.
Home equity loan:
It is a loan that is against the equity of the house. It is the second loan right next to your house. It normally have a very low interest and very flexible to pay off like a credit card. You can extend the pay period as long as you can and pay interest only. The down side is if you can not make the payment, lender can take your house away. So my accounting suggested me that never do that. You don’t want to risk your house just because your car stuff.
Summery, most cars does not worth much money after 5 years. 7 years later your car will be history. So don’t put too much money on the car. Most people replace new cars in 3 year or before the car paid off. It is not a very wise idea.
From Wenxuecity.com, writter:CarCrazier
How much can you finance:
Your car’s OTD price should be equal or less than your annual gross income. Ex. If you are going to have a $30000 car, you better make at least $30,000 per year. Don’t forget you still need 20% down.
Example is an IS300 new. $30000 OTD. Purchasing interest is 3.9% for 60 payments.
You pay $30000 for the car and you drive it home. It is easy. You can also save money on insurance. I bet most people wont save money on insurance anyway.
My suggested down payment is 20% which is $6000. Most people who can pay cash are having good credit. The rest $24000 will be paid in 60 payments at $441. If you invest this $24000 wisely, you will have return at 5% (easy) comes $30801. Your total car payment in 5 years will be $264000. The difference is what you actually can save. This is very basic calculation. The rule is not to put all the cash into something that does not write off tax and does not have good future value.
$0 down is never to be a good option. You are financing the destination fee and tax which is have nothing to do with the car. When lender look at your loan structure, they more you put down more you will be able to get good deal. At some extreme conditions such as the car have high depreciation rate, your best move is to put less down but never to be $0.
To some economic cars, 10% is a good starting point, since it is a $15000 car lender will not be so excited about it.
If you just graduate from College or about to graduate in next 4 months, you can take advantage at a program for college graduates. You can receive up to $1000 cash towards down and lower interest. If you are in Army Services, there will be a program for you as well.
First time buyer:
There are lots of financial institute will finance a first time buyer especially a credit union. If you can show a good income and a good employment history, you can be financed. A big chunk of down payment will be very helpful. If you have an approval letter from a credit union for $24000 at 9.9% per year for 5 years. You are very likely to get same loan for 7.9% at dealer. Manufactory’s finance will normally beat banks for 2% to earn your business.
Debit to income ratio:
It is a number that bank will look at when you finance a car and house. It is your total monthly payment (credit cars, cars and mortgage or rent) / monthly earning before income tax. I prefer doing by monthly net income.
Your car is supposed to be ¼ and less of your monthly cash income to cover everything. Your mortgage supposes to be 1/3 of your gross income. This ratio is also a factor that decides your interest rate.
Home equity loan:
It is a loan that is against the equity of the house. It is the second loan right next to your house. It normally have a very low interest and very flexible to pay off like a credit card. You can extend the pay period as long as you can and pay interest only. The down side is if you can not make the payment, lender can take your house away. So my accounting suggested me that never do that. You don’t want to risk your house just because your car stuff.
Summery, most cars does not worth much money after 5 years. 7 years later your car will be history. So don’t put too much money on the car. Most people replace new cars in 3 year or before the car paid off. It is not a very wise idea.
From Wenxuecity.com, writter:CarCrazier
posted by yaoyaoyao | 11:26 AM
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