Understanding How Much Car You Can Afford and the Impact of a Good Credit Score

Posted by Excite Credt Union on Jan 23, 2024 4:48:29 PM

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Let’s dive into two crucial aspects of car buying: understanding how much car you can afford and recognizing the impact of a good credit score. Welcome to the comprehensive guide on navigating the exciting journey of purchasing your dream car while staying within your financial means. In this update, we'll delve into two crucial aspects of car buying: understanding how much car you can afford and recognizing the impact of a good credit score has on that purchase.

Assessing Your Budget
Before you embark on your car-buying adventure, take a moment to assess your monthly budget. Factor in your income, expenses, and savings goals. Utilize Excite Credit Union's calculator tool to determine a comfortable monthly payment for your new car.

Remember, owning a car involves more than just the monthly payment. Account for insurance, fuel, maintenance, and unexpected repairs. These budgeting tips will guide you in creating a comprehensive picture of your car ownership expenses.

How Much Car Can You Afford?
Explore the benefits of getting pre-approved for an auto loan. Pre-approval provides a clear understanding of your budget while enhancing your negotiating power at the dealership.

Break down the total loan amount and monthly payment to ensure they align with your budget. Excite’s easy-to-use calculators are designed to help you find the sweet spot, ensuring your car ownership experience remains stress-free.

The Power of a Good Credit Score
Now, let's talk about the game-changer – your credit score. A good credit score can lead to lower interest rates and better loan terms. To increase your credit score, here are three tips:

1.    Ensure timely payment of your bills consistently. Timely bill payments are crucial, constituting the largest portion (40%) of the factors influencing your credit score.
2.    Maintain a low credit utilization. Avoid utilizing a significant portion of your credit at once. Your credit utilization ratio, accounting for 23% of your score, should remain below 30 percent. For example, if you have a credit card with a $15,000 limit, aim to keep the charged amount below $4,500.
3.    Prioritize your credit history. Your credit history, contributing 21 percent to your score, plays a vital role in improving it. Keep credit cards open for an extended period, especially those without an annual fee.

Here are some hard numbers to emphasize the impact: For instance, if your credit score falls between 620 and 659*, the monthly payment on a $40,000 auto loan over 60 months would be $899, with a total interest of $13,912. Boost that score to 720-850*, and your monthly payment drops to $808, with a total interest of $8,467 – a difference of $5,445.

Armed with the knowledge of how much car you can afford and the impact of a good credit score, you're well-prepared to make informed decisions on your journey to owning the perfect vehicle. Happy car shopping!

*FICO Score credit ranges are for example purposes only.

Topics: Talking About Money, Auto, Building Credit