Determining the Shortest Auto Loan Payoff You Can Afford

Figuring the shortest auto loan payoff that you can afford is essential when looking at auto loans. Shorter loans not only carry better APRs, but they quickly reduce the principle. While shorter loans are typically the best deals overall, they can significantly strain your finances if the accompanying monthly payment is beyond what you can reasonably pay. In order to determine the shortest auto loan payment that you can afford, read the helpful information below to get started.

Beginning Your Calculations

You should begin your calculations before deciding on a car. Choosing an affordable car will make it much easier to pay off your loan quickly without putting yourself in financial straits. Start by looking at your monthly budget and ask yourself, "how much can I afford to spend each month on my auto loan payoff?" Also, if you have a trade-in, be sure to research its blue book value on Kelley's Blue Book Used Car Values, either on the web or at your local library. The trade-in, depending on how much it is worth, will significantly help with the overall monthly payment on the newer car you're interested in buying.

In addition to taking your monthly budget into consideration, you should be aware of your state's required fees and if you'd like to provide a down payment. First, your state will require you to pay sales tax, titles, tags, and fees when registering the car. So, ask the dealer or lender for an estimate on how much these will cost with regard to the car in order to properly place it in your calculations. Second, if you can afford to submit a down payment, determine its amount before going to a dealer. While a down payment helps to drop your monthly payment, you do not want to financially over extend yourself. 

Choosing a Car

If you have picked out your new car and finalized a price with the dealer, then you can use an auto loan calculator to see whether or not the numbers add up to the monthly payment you decided you could afford. If you are tempted to strain your budget to have one particular car over a more affordable option, then calculate the final difference in price over a short-term loan for the cheaper car and a longer term loan for the more expensive car. Be aware, however, that the interest rate is higher with long term loan rates, which will cost you more interest over the life of loan.

Include Additional Fees as Required by the Lender

While you are taking into account how a down payment or fixed APR will reduce your monthly out of pocket costs, be sure to include fees that are required by the lender. You may encounter processing fees, pre-payment penalties, large balloon payments, etc. While you may not have to pay these fees, you should tentatively include them in the event you are required to pay them. You do not want to be surprised by an unforeseen fee that could have been avoided with more careful reading of the loan and planning of it within your budget. By including potential fees into your calculations, you'll get a much clearer picture as to how early you can pay off your loan in addition to the overall amount you'll be spending to pay the loan in full.

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