Keffer's Corner: Car Payment Planning

Eighty percent of Americans will finance their vehicle purchases. Outstanding automotive
consumer debt just topped $1.01 trillion. This was attributed to
be a positive sign for today’s
economy. The latest figures
from the Federal Reserve Bank
of New York also show total
consumer debt at $11.85 trillion.
Depending on how much total
debt a household has, it would
suggest roughly 8.5 percent
of a household’s debt could be
car-payment related. What is
more relevant is looking at
auto
debt versus overall income.
My research gave two opin
-
ions on car payment to income.
One suggested the payment
itself be 10 percent of take-
home pay. Another suggested
all car expenses (gas/insurance/
upkeep) should be within 10-15
percent of gross income. I like
the simplicity of the 10 percent
of take-home pay as a suggested
cap on your payment. Too many
first-time car financers ratio
-
nalize too big a chunk of their
income to pay a car payment.
(Hint: Think
half of one
week’s take-
home pay.)
Consumers
often find a
budget for a
home before
-
hand, and
the lending
process helps
keep the pay
-
ment capped.
Having a
budget for a
vehicle is no
less wise.
Credit should be taught at
every high school in America
before graduation. At 18, the
dam opens, particularly for
college students. DriversEd.
com offers an article on car
budgeting to help youngsters.
The content is helpful for other
age groups. Items such as what
lenders look for to approve a
loan; 1) documented income of
$1,600 or more (before taxes),
2) living at an address for at
least six months, 3) employed at
least six months at a company,
4) a year of good
credit history,
and 5) a credit score (too broad
to qualify standard guidance).
Most of this is logical.
Lending rates vary widely
and the payback differences
are enormous. Take $15,000
financed for 48 months; at
4 percent APR, it is $339 a
month, with $1,257 interest. At
15 percent, it is $418 a month,
with $5,038 interest. To the
young buyer, saving some down
payment, being on the job for a
while, establishing some small
credit lines and paying on time
will position you for a lower
rate. Those in a hurry without
the credentials for a good rate
will overpay. There are plenty
of lenders out there willing to
let you pick your poison. For
those who had credit problems
(many hard-working, good peo
-
ple), you may have no choice
but to pay while you rebuild. For
the anxious 19-year-old, slow
down and prepare to get off to a
good start.
Paying a car payment on
time over a year or two is a
great credit springboard, partic
-
ularly while preparing to make
a home purchase. Get your car
credit established, and the rest
can fall in line. As American’s
appetite for credit has been
reengaged,
it is time to get
the best terms available. The
average new car is more than
$32,000, making it a big deal
to buy one. The average used
car is half that amount – also a
big deal. A little planning and
knowledge goes a long way.
Only
420 days until
the elec
-
tion. Can you handle it? Don’t
answer. Have a good week.

Categories: New Inventory

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