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How to Use OcalaCarCredit.com's Affordability Calculator

Down Payments

It makes sense to pay as large a down payment as you can afford. Doing so reduces the amount of money you must borrow to pay for your new vehicle, and therefore lowers its total cost. You'll reap the rewards in lower monthly payments. You may even be able to obtain a shorter loan for even greater savings.

How much should your down payment be? Most experts recommend at least 20 percent. Generally, this amount will keep you from ever owing more on the vehicle than it is worth—and is, in fact, the amount many lenders require to approve an automobile loan, especially for a used car or truck.

At the very least, plan on using the money gained from the sale of your present vehicle as a down payment on your new purchase. If you trade in your present car or truck to the dealer, be sure you receive an actual price for it, not an "allowance" that varies with the vehicle you intend to buy or with the terms of the purchase.

On the other hand, even if pressured to do so, don't pay any money down until both you and the dealer have signed a purchase order for the new vehicle. That way your money cannot be used as a tool by the dealer to hinder you from shopping elsewhere.

Estimate Your Monthly Payments
Let's say the purchase price of a vehicle you like is around $21,500. Select the Calculate My Monthly Payment option and enter that specific amount in the Purchase Price box. Next enter the down payment you expect to pay. If you know the interest rate or the term of the loan you expect to get, enter those amounts, too.

Instantly, the Affordability Calculator displays your monthly payment amount and the total cost of the vehicle. All computations are based on interest rates, loan terms and down payments you can enter and modify. The Affordability Calculator automatically adjusts your monthly payment figure or the vehicle's purchase price and total cost.

OcalaCarCredit.com's Affordability Calculator is designed to function as an estimating device. It does not take into account tax and license, destination and dealer prep charges, advertising fees, options, extended warranties, service packages and other costs associated with a vehicle purchase. Of course, you can factor these costs into the purchase price if you like, as most people do when they buy a car.

Estimate Your Buying Power

Select the Calculate How Much I Can Afford option. Then enter your down payment and a monthly payment that suits your budget. The dollar amount you can afford to spend on a car is instantly displayed, given a 9.5 percent interest rate and a 60-month term (the default settings).

You can modify any of the values, including the loan term or interest rate, to study the effect on your buying power. The OcalaCarCredit.com Affordability Calculator is surprisingly flexible—a great tool for estimating buying power, comparing different loan and financing scenarios, or calculating monthly payments on the car of your dreams.

Remember, the Affordability Calculator is designed to function as an estimating device. It does not take into account tax and license, destination and dealer prep charges, advertising fees, options, extended warranties, service packages and other costs associated with a vehicle purchase. Of course, you can factor these costs into the purchase price if you like, as most people do when they buy a car.

Comparison Shopping for Loans

The OcalaCarCredit.com Affordability Calculator is a handy device for savvy car buyers who are actively "comparison shopping" in today's competitive loan market.

By changing the loan term and interest rate amounts, you'll see how these values affect the size—and therefore the buying power—of your monthly payments. They will also affect your loan's overall cost, reflected in the vehicle's total cost.

Enter the interest rates and terms of loans you are considering, and see how the competition stacks up. The Affordability Calculator will instantly tell you what the impact will be on your pocketbook.

Before accepting any loan, check as many loan sources as possible to be sure you are getting the best price within your range of affordability.

How Much Financing Can You Afford?

How much should you pay for car or truck financing? Some experts say for vehicle loan installments you should avoid paying more than 20 percent of the money you have left each month after paying all your regular expenses—rent or mortgage, utilities, normal food and transportation charges, credit card balances, etc.

Of course, the more of these expenses you include, the less money you will have left for making monthly car or truck loan payments, but consider the alternative: Fudging the accuracy of your living expenses may force you to make unwanted sacrifices to keep up with vehicle payments. (A year and a half from now, will you still be satisfied not eating in restaurants or renting videos on weekends to pay for your car?) And worse, an emergency could spell genuine financial trouble.

Interest Rates and APR

Interest rates for loans vary by region, channel (a type of lender; each has its own competitive field), market forces, and term—the length of time for which the money is borrowed. Short-term loans usually have lower rates than long-term loans, and high-risk applicants often end up paying higher interest rates than applicants with pristine credit ratings.

Some of the confusion surrounding loan costs was eliminated in the mid-'70s with the passage of the Truth-in-Lending Act. It requires all lending institutions to quote interest as an annualized percentage rate (APR) of the monthly loan balance. APR, therefore, includes all compulsory charges associated with the loan—such as credit report fees, application fees or origination fees.

OcalaCarCredit.com's Affordability Calculator can handle both APRs and interest rates. Just be sure, if you do your calculations on the basis of interest rate alone, to factor compulsory loan charges into your purchase price.

Loan Terms

For new cars, loan terms of 60 months and more have become common. This is due partly to increasing prices that have made traditional 24-, 36-, and 48-month loans less affordable for many buyers, and to the increasing reliability and life expectancy of new vehicles. (Twenty years ago, for example, few new cars were likely to hold their value beyond four years. Therefore, lending—and especially borrowing—money for a longer period to buy such a car was rightly considered unsound.)

Even so, you should still be wary of loans having terms longer than 48 months. If not, you could find yourself "upside down"—that is, owing more on your car than it's worth.
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