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What Can I Afford?

Auto loan rates can vary wildly, from special zero-percent financing offered by dealerships to qualified buyers - people with near-perfect FICO credit scores - to the sometimes 30+ percent interest rates offered by Buy Here Pay Here dealers (some states permit interest rates to reach 36 percent).

While you might not qualify for the best rates, remember that with a good eCredable AMP Score®, you don’t need to settle for steep rates.

Research Before You Sign

Before you start looking for loans, you should have a general idea of how much you want to spend on a car and how much you can afford to pay each month. Remember to include additional costs such as taxes, registration and potential dealer fees when calculating your total loan cost.

To calculate how much you can spent, take a close look at what you’re already spending each month. If you’re spending $200 per month on transportation (either for a car loan you currently have or on public transportation), it’s safe to assume you can swing at least that each month on your vehicle. If you have extra money left over at the end of the month, you might be able to spend a little more. If things are tight, you might want to spend a little less.

Once you’ve decided on the general amount you can afford each month, you need to look at how much cash you have available for a down payment. Ideally, you should be able to put at least 10 percent down on the car.

Your auto loan payments should account for no more than 20 percent of your disposable income, the money you have left after you pay your usual living expenses — rent or mortgage, utilities, food and transportation, credit card payments, etc.

If you want to get an idea of how much your monthly costs will be with interest, try inserting a range of interest rates in an online calculator. This will give you a solid idea of what you might expect to pay overall each month at different rates. Some calculators will do this backwards, starting with the monthly payment, to tell you how much car you can afford to buy.

As you’re calculating your monthly payments, it may seem smart to lengthen your loan term in order to lower your monthly payments. But keep in mind that this will cost you more money overall. The longer your loan term, the more you will pay in interest. Aim to pay off your car in five years or less. If you can’t afford that, you should look for a less expensive car.