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If an individual is planning to purchase a new car it is a big decision and before one signs on the dotted line it is important to understand how much it will actually cost them.
When browsing one’s options it is necessary to keep in mind that financial experts will ask the borrower to spend less than 10% of one’s monthly take-home pay on their car payment. This means that if an individual takes home a pay of $3000 per month then he or she can plan to spend not ore than $300 on one’s car payment.
If one is buying a new car, then the average interest rate for someone with a credit score that ranges between 61 and 780 is considered to be in the good range, is 4.71% accoording to Bankrate. The average interest rate for someone with a credit score between 501 and 600 is considered to be poor to fair, is 11.3% which is a major difference.
It is to be kept in mind that although used cars are typically cheaper, interest rates for pre-owned vehicles tend to be higher. While buying used car, the average interest rate for someone with a credit score that is between 661 to 780 is 6.05% according to the Bankrate. For someone with a credit score that ranges between 501 and 600, it is 17.78%.
From there, one will need to decide on the length or the term of their auto loan as of the second quarter of 2020 where the average loan term for a new car loan is nearly 72 months or six years. Car loans have been getting longer in recent years, within a time period of 72 and 84 month loans replacing the more traditional 48 and 0 month loans according to the Experian reports.