New Car Budget Basics

Toy car and calculator.

Determine the new car you can afford with these simple steps.

If you're in the market for a new car but don't know how much car you can afford, use these simple steps to determine the vehicle that best fits your budget.  Your wallet will thank you.

Step 1:  Calculate your down payment and monthly payment

First up, determine how much you can afford to spend for a down payment and a monthly car payment if you finance the vehicle.  Depending on the lender and your credit, you may need to come up with 10 to 20 percent down in some cases.  Obviously, the more money you put down, the less your monthly payment will be.

Use the LendingTree Auto Payment Calculator to determine what your auto loan payment will be by entering the loan amount (minus any down payment), the length of the loan and the interest rate you were quoted by the lender.  If you're concerned about whether or not you can afford the monthly payment, put this dollar amount into a savings account for a few months prior to purchase.  Not only will you have a bigger down payment when it comes time to buy, you'll know if you can comfortably afford the monthly payment over a period of time.

Step 2:  Factor in your trade-in

If you plan on trading your used car towards the purchase of a new one, be sure to check its Blue Book value ahead of time.  When researching used car prices, the trade-in value is the price can expect to receive from the dealer.  Consider using the value of your trade-in as a down payment if its value is five to 10 percent of the new car's purchase price.  If it's more, consider applying the additional money towards the cost of buying it.  As with any new car purchase, it's wise to get a final out-the-door new car price quote from your dealer before you negotiate the down payment.

Step 3:  Research incentives and rebates

Research any new car incentives and rebates that might be offered on the new car you want to buy, for added savings.  New car incentives and rebates, also known as 'current offers' or 'special offers', are savings programs offered by manufacturers to consumers on specific new car makes and models.  There are a variety of new car offers available, including low interest car loans, no interest car loans, cash rebates and special lease programs such as zero down payments, zero up-front fees and low monthly payments.  There are also specific cash incentives paid to dealers by manufacturers when particular vehicles are sold.  At their discretion, dealers can choose to pass along these savings to car buyers as an added sales incentive. 

If you can, consider using a cash back rebate towards your down payment, to lower your loan amount and ultimately, your monthly payment amount.

Step 4:  Find the car that best fits your budget

Once you know your down payment or trade-in allowance, the amount you need to borrow, and your monthly payment amount, now it's time to find the car that best fits your budget.  Research new car makes and models, as well as new car prices, at LendingTree.  Be sure to cross-compare your top new car prospects with similar makes and models, since you may find better deals on different brands.  Today's car buyers have a wide range of choices when it comes to body styles, standard and optional equipment, towing and hauling capacities, interior and exterior color choices and more. As a result, you may find similar vehicles with the features you want at more affordable prices than the new cars on your initial prospect list.

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