Driving a new car is always exciting but the good feeling will only last as long as you are able to manage your loan. Avoid getting into financial trouble by being smart about getting a car loan. Before you shop around across different banks, you should first look into your own finances and assess your capabilities. This will prevent you from taking on more than you can handle. You will also be able to put yourself in a good position to pay low interest rates and prevent loan defaults. Set the following in order:
Do you have any outstanding debts? You should try to keep your debt to income ratio as low as possible, especially if you are a single earner in your household. Don’t squeeze your monthly paycheck such that it’s nearly gone by the time you pay your bills. Experts recommend keeping the DTI at 35% or less. As for the monthly payments, it would be best to keep this at under 10% of your monthly income. Look for car models with a reasonable price and loan terms that will allow you to follow this rule. It will give you enough wiggle room for other household expenses.
