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What Car Payment Can I Afford?

Before you head to the dealership, please take a moment to decide what monthly car payment you can afford. First, you need to consider your lifestyle and budget. Most importantly, look at your situation and be realistic and honest. Car payments should be no more than 10-15% of your net income.

What’s in a monthly car payment?

Your monthly car loan payments depend on these factors:

  1. The Loan Amount | based on the sale price of the car and minus a down payment or trade-in credit.
  2. The Rate | The rate is often called the annual percentage rate or APR. The rate that you will receive will be based on your credit score and represents the cost of borrowing money. Lower credit scores generally result in higher rates.
  3. The length of the loan | The length of the amount is also called the term. Additionally, some people take out a longer loan to get a more affordable car payment. On average, the term of a car loan is 36 months for used cars and 60 months for new cars.

How much is a car payment usually?

The average monthly payment for a new car is $563* and used cars have the lowest average monthly payments at $397*. In general, if your credit needs a little work, your car payment may be a little higher.  *Experian

What is the average monthly car payment?

The average loan amount for new cars is $34,635*. For used vehicles, $21,438*. *Experian

What Car Payment Can You Afford?

On average, your car payment should total no more than 10-15% of your net income (take-home pay). Your take-home pay is the money you make after federal, state, and local income taxes are withdrawn from your paycheck. In some cases, sometimes your retirement and other expenses like health or life insurance are also deducted. The resulting amount is your net income.

Essentially, if you take home approximately $3000 every month. Your car payment should be $300 to $450 per month, not including other expenses like insurance, fuel, and maintenance costs.

With Pearl Hawaii’s LIFE Manager, you can manage your assets all in one place. LIFE (Loans, Investments, Finances, Earnings) Manager helps you link your accounts at other financial institutions so you can see the bigger picture. Overall, you can make transfers, view balances, and manage money more efficiently. Additionally, you can create a budget, plan out your life, manage expenses or income, create goals, and manage your net income. Log into PHFCUOnline and get started.

Your Car Payment Is Not Your Only Car Expense

Remember, other than your monthly car payment, you will need to consider insurance, gas, repairs, maintenance, and even parking. Unfortunately, life happens and you may also want to consider other expenses and possible little hiccups. Essentially, if you get a parking or speeding ticket or if your car happens to get towed, ensure that you have the amount to cover the costs.

Avoid a Costly Car Payment Mistake

Once you’ve determined the monthly car payment you can afford, consider your overall plan. You could waste a lot of money by focusing only on the monthly payment and ignoring your total financing costs.

Not all loans are created equally. Primarily, there are two types of auto loans. With a simple interest loan, your interest is calculated based on your loan balance on the day your car payment is due. The amount of interest you pay each month changes. With a car payment that is made up of precomputed interest, interest is calculated at the start of your loan and based on your total loan amount. Pearl Hawaii only offers simple interest auto loans. For more information, check out the Consumer Financial Protection Bureau (CFPB). CFPB is a U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly.

Most Importantly

The best way to estimate what your car payment might be is to check your credit and then use an auto loan calculator. However, you won’t know exactly what rate and loan amount you qualify for until you apply for a car loan.

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Monthly Payment

Cost of car
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If you need to borrow money, we can help you. If you’re still not sure whether a loan is a right option for you, call us at 808.73.PHFCU (737.4328) or visit one of our locations on Oahu (Waipio, Waianae, Ewa Beach, Honolulu,  Airport,  and Pearl Harbor). Our team is ready to look at your financial situation and recommend the best option for you. You can also apply online to get started…