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      March 24, 2019

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How Much Car Can You Afford?

It finally happened. Your old car – the one you had decided you would keep until it literally fell apart – has finally bit the dust. Or maybe you’ve decided the time is right to upgrade to an SUV to help get you through those rough winters.

No matter what your reasons, if you’ve found yourself in the market for a new or used vehicle, then one of the first steps in the process is to decide how much vehicle you can afford.

There are financial rules about how to know if you can afford many things. Rent on a place to live should be no more than one week’s paycheck. A monthly mortgage payment should be no more than 20 percent of your salary after taxes.

A similar rule applies to knowing just how much you can afford when it comes to purchasing a new or used vehicle. Financial experts have suggested that no more than 20 percent of your monthly income after taxes be spent on an auto payment. That includes factoring in the purchase price, any down payment you are able to make, and the interest rate and term of the loan.

Estimating your monthly payments, based on the purchase price, down payment and financing options, also is important. If interest rates are low, it allows for buyers to get more for their money. However, if you have less than stellar credit, it will affect the kind of interest rate you receive on any loan. If you are subject to a higher interest rate, it would be wise to seek out a less-expensive vehicle to offset the larger interest amount you’ll be paying.

One of the best ways to lower your monthly payment and get a lower interest rate is to put a significant chunk of money down on the vehicle you wish to purchase. If it is in your budget, try to put down at least 10 percent of the vehicle’s purchase price in the form of a down payment. The higher the down payment is, the lower the monthly payment will be, which can increase your ability to pay off the loan sooner.

Another very important factor to consider is the maintenance costs for the vehicle you will be purchasing. Most brand new vehicles come equipped with three year or 36,000 mile warranties at a minimum. A few car dealers will offer warranties on the power train that can extend to 60,000 miles or more. These warranties only cover the cost of repair work, and not the annual maintenance that is a part of owning a vehicle. Annual maintenance items include oil changes, tire rotations, replacing tires and flushing/filling various fluids in your vehicle. The average vehicle owner spends 1.5 percent of their annual income on vehicle maintenance each year. Be sure to factor that in when determining if a particular model is affordable for you.

Last but not least are the costs to fuel and insure your vehicle. With gas prices currently at $4 or more a gallon in the U.S., many consumers are purchasing smaller, more fuel-efficient vehicles. According to information collected by AAA, the average cost of fueling a small sedan annually is $6,735. SUVs and large sedans were the least fuel efficient, costing between $8,000 and $11,000 annually to fuel.

Vehicle insurance also is an important factor in the affordability of any vehicle. Newer models always cost more to insure than used vehicles. Insurance rates also will depend on the number of miles you anticipate driving annually, and whether you drive in a high-risk area for automobile accidents.

Once you have factored in all of these items, you will have a decent idea of just how much car you can afford.

As investors worry about a recession on the horizon, a record 7 million Americans have stopped paying their car loans. Here's why.

Ten years into a bull market, Americans are getting jittery about when the music will stop and the next recession will tear through the economy. While bad economic omens are being spotted in a variety ...

Published:  Fri, 22 Mar 2019 14:48:00 GMT



Car Leasing vs. Auto Financing

Leasing a car and traditional auto financing might live in the same category in your mind, but they're two completely different processes. One thing both have in common is that they can be more ...

Published:  Sat, 23 Mar 2019 06:14:00 GMT



How to maximize your auto loan program

While auto loans often hold a prominent share of a credit union's overall portfolio, some credit unions make the mistake of viewing indirect financing, leasing, and direct lending as entirely separate ...

Published:  Wed, 20 Mar 2019 00:30:00 GMT



US Car Loan Payments And Interest Rates Reach 10-Year High Thanks To Trucks, SUVs

The new vehicle market in the US is now facing the highest average car loan payment (along with interest rates) in a decade, mostly due to the surging interest in trucks and SUVs, according to Edmunds ...

Published:  Wed, 20 Mar 2019 08:03:00 GMT



ON THE MONEY: How to avoid late auto loan payments as prices rise

DETROIT (AP) - New vehicle prices and interest rates are on the rise, causing millions of people to fall behind on their auto loan payments. But experts say you can avoid being one of them by ...

Published:  Tue, 19 Mar 2019 17:42:00 GMT



America's obsession with trucks and SUVs is helping push car-loan payments to a 10-year high

The average car-loan payment just hit a decade high, according to Experian data first reported by Automotive News. In the fourth quarter of 2018, the average car loan in the US was $545 a month for ...

Published:  Mon, 18 Mar 2019 08:09:00 GMT



Auto Parts Supplier BorgWarner Names New Finance Chief

Automotive parts supplier BorgWarner Inc. on Tuesday named Kevin Nowlan as its new finance chief, tasking him with cutting costs to cope with the car industry's headwinds in markets such as China and ...

Published:  Tue, 19 Mar 2019 08:28:00 GMT



Money Matters: Refinancing a car loan

With interest rates still historically low, refinancing a mortgage can be a smart move: it can save you hundreds a month, or thousands over the life of the loan. But does that same logic apply to your ...

Published:  Sun, 17 Mar 2019 07:06:00 GMT



Job Requirements for Bad Credit Auto Loans

People often find themselves stuck in tough situations where they need a car to get a job, but they need the income from a job to get a vehicle. It may seem like a no-win situation, but it doesn't ...

Published:  Sun, 17 Mar 2019 06:10:00 GMT



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