Determination usually is a good thing.
But that may not be true when you’re shopping for a vehicle if that determination results in a purchase with monthly payments you cannot afford to maintain.
With the average transaction price climbing toward $33,000 for a new vehicle and $17,000 for a pre-owned, or used, vehicle, it’s getting more difficult for shoppers to avoid such a trap.
And it doesn’t help if you’re inclined to focus on the car, truck or SUV rather than what it will cost you.
“[Shoppers] are determined to buy all the car they want,” said Michelle Krebs, a senior analyst at AutoTrader.com in a recent article, “10 things you’ll pay more for in 2015,” online at CNN Money. “And they are going to have all the bells and whistles on it.”
But avoid it, you must, especially if you have bruised credit and must borrow to make the purchase.
More than 2.6 percent of the millions of vehicle purchasers who borrowed in the first quarter of 2014 had missed at least one car payment by November, according to an analysis of Equifax credit-reporting data performed by Moody’s Analytics and reported in The Wall Street Journal. And almost 8.5 percent of borrowers with weak credit scores had missed payments by November.
(Subprime borrowers account for about one-quarter of the nearly $1 trillion in auto loans annually, according to a recent report entitled “Bad carma” in The Economist online.)
So, determine that you won’t be one of them by, yes, determining how much car you can afford.
That’s as easy as employing the 20/4/10 “rule” suggested by many financial experts – 20 percent down, four years, no more than 10 percent of your gross income – then sticking to the result.
We provide details on how the 20/4/10 rule works and why you should use it in a recent blog post, Here’s the new car question you should ask yourself before buying.
If you can’t afford the payments on a loan using that rule, you probably can’t afford the vehicle and run an increased risk of missing a monthly payment or payments and becoming delinquent. And that’s about the last thing you want if you’re already dealing with bruised credit.
Channel your determination into finding the right vehicle at the right price to fit your income.
Then, when you’re ready to purchase that new or used car, truck or SUV, make sure you check out Santander Consumer USA, which provides indirect financing through 14,000 dealerships nationwide – ask for us among your financing options – or through Chrysler Capital purchase or lease programs or through SCUSA’s direct-to- consumer RoadLoans program.