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It’s important before getting yourself in debt to leverage a Car Payment Calculator that helps you determine your monthly car payment and the time it would take to pay off your debt.

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See how your payments are allocated between interest and principal over time

Tips

Save
by increasing your monthly payment.

Adding extra to your monthly payment would reduce your principal balance faster since more money would be left over after finance charges. Having a lower balance sooner in turn reduces your interest payments, as your interest rate would apply to a smaller amount and compounding would be diminished. In short, you’ll save a lot of money in the long run and get out of debt much sooner – if you can afford to scrimp now. But we know that adding extra to your monthly bills could be a big deal!

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Save
on interest if you are willing to make payments every two weeks

Making smaller payments more frequently is a great way to build discipline and improve budgeting efforts. It will also save you money on interest and help you get out of debt sooner. How? By making more than one payment per month, you would reduce your average daily balance – the amount your APR applies to. You would therefore pay less in interest each month. With lower monthly costs, more of your budgeted monthly payment will apply to your principal balance and you’ll be back above water ahead of schedule.

Loan Comparison Original Monthly Payment Every Two Weeks
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Save
by reducing the loan term to Months

The longer your loan term is, the more you’ll pay in interest. That’s because interest compounds over time, which means a given month’s finance charges are the result of applying your account’s APR to the sum of your principal balance and the interest you were charged the month before (and the month before that, etc.). In order to use this saving strategy, however, one must be able to afford higher monthly payments. You’ll save on interest in the long run; fewer monthly payments simply demand bigger monthly contributions.

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Save
by increasing your down payment

With a higher down payment, you won’t need to borrow as much. As a result, your loan’s interest rate will apply to a smaller amount from the start, with your monthly savings compounding over time. Monthly payments would also be more manageable. The obvious impediment, however, is short-term affordability. Most people put down as much as they think they can afford, and coming up with a few thousand dollars extra is a big ask. But if you comfortably afford to place a higher deposit, without jeopardizing retirement savings or your emergency fund, your wallet will ultimately thank you.

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Cities with the Most Auto Loan Debt

*Highest Car Loan Debts = 99th Percentile View Full List

Ask the Experts

Buying a car isn’t as straightforward as making everyday purchases. The former involves multiple steps and requires prior research, a reasonable budget and some negotiating skills. But buying isn’t for everyone, either. For guidance on the proper way to purchase, or lease, a car, we asked a panel of experts for their thoughts on the following key questions:

  • What are the most common mistakes people make when shopping for a car?

  • In what circumstances is leasing a smarter option than buying?

  • Generally, what percentage of take-home pay should go to car payments?

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Jim Seward

Associate Professor of Finance in the Whitman School of Management at Syracuse University Jim Seward What are the most common mistakes people make when shopping for a car?

There are, of course, differences in the shopping habits of individuals, so different people commit different mistakes. Here are the more common:
  • Failure to consider multiple manufacturer models -- you can generally get the best deal by being open-minded and investigating multiple cars when shopping. That way, you can take advantage of whichever is willing to offer the best deal.
  • Failure to shop at multiple dealerships -- the same vehicle can be priced differently, sometimes very differently, at different dealerships. So, for example, if you decide on a Toyota Camry, make sure to contact several dealers in the area to get the best price. Dealers are generally more aggressive if they know there is competition for the sale.
  • Failure to consider differences in warranties and the cost of servicing vehicles post-acquisition -- the overall cost of the car depends not only on purchase price, but the costs of maintaining and servicing the car, as well.
  • Failure to shop for financing -- dealer financing may not always be the best or cheapest form of auto financing. Before going to the dealer, check with other local financial institutions for their rates.
  • Paying list price rather than negotiating. Use an online service, like www.edmunds.com, to get an idea of the car dealer’s cost for the car. Negotiating knowledgeably is always better than seemingly not having an understanding of the dealer’s cost of the car.
  • Not asking the dealer to “throw in” extras, like car mats or paint protection -- their profits on these items are very large, so they’ll often throw them in for free if you ask.
  • Failure to check for rebates or special interest rates on a car.

In what circumstances is leasing a smarter option than buying?

The main rule of thumb depends on the intended length of time the buyer wants to use the car. Generally, leasing is better if the buyer wants to hold the car for a shorter period of time (say, three years or less). Note that this will usually keep the car fully supported by warranties and free post-purchase servicing. Buying is generally a better option if the buyer wants to hold the vehicle longer (beyond 5-6 years).

Generally, what percentage of take home pay should go to car payments?

This likely depends on whatever other expenses the buyer has, but a general rule of thumb is that transportation should be 10-15 percent of the home budget.
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Joel B. Schumacher

Extension Economics Associate Specialist in the Department of Agricultural Economics and Economics at Montana State University Extension Joel B. Schumacher What are the most common mistakes people make when shopping for a car?

Buying a new car can be exciting, stressful and a rare event for consumers. First, most consumers don’t buy a new car every month, or even every year. Even “frequent” car buyers often only purchase a new car every 3 to 5 years, and for the average car buyer, there can be 5 to 10 years between purchases. The consumer’s opportunities to practice and refine their car buying skills are likely infrequent enough to not really master the skill. Second, many consumers will be making loan payments, insurance payments, license/registration fees and operating expenses on a monthly or annual basis. Well-prepared consumers will have determined a maximum monthly amount (loan payments, insurance, etc.) that they can comfortably afford. However, car dealerships typically advertise the purchase price and rarely mention taxes, loan fees or other costs that are part of the initial costs.

Estimating insurance and operating costs can be equally murky. This creates some additional work on the consumer’s part to translate all of this information into a single monthly amount. This extra work can be overwhelming, and it presents the opportunity for mistakes to be made in calculating the expected monthly cost. The reasons may vary, but often, consumers end up with more monthly expenses than they planned.

In what circumstances is leasing a smarter option than buying?

Consumers considering leasing a new car need to take careful note of the terms of the lease, and the potential outcomes in a variety of situations that could occur over the course of the potential lease. Some will find that leasing makes sense for their needs, but most will not. If leasing is the only way you can afford to get a higher-value vehicle, you might want to reconsider your priorities and needs. That is typically not a good reason to lease a car.

Generally, what percentage of take home pay should go to car payments?

Everyone likes a simple guideline that can be followed without much thinking. A few common examples are save 10 percent for retirement, don’t spend more than 30 percent on housing or have 3 months of earnings saved for emergencies. These sound nice, but the reality is that a careful budget is far more useful that a simplistic rule of thumb. A budget will help a consumer incorporate specifics to their situation. These important specifics include housing costs, student loans, family size, income level, health insurance expenses, and the list goes on. A family budget incorporates these specifics to provide a good recommendation for how much “should” be spent on a car payment.
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Timothy Pfeiffer

Program Coordinator and Instructor of Business at Houston Community College Timothy Pfeiffer What are the most common mistakes people make when shopping for a car?
  • Focusing on monthly payments instead of the final price. Consumer should research from home (list price, selling prices, etc.) prior to visiting a dealership. Salesmen will focus on monthly payments, which is good for them, but bad for the customer. Consumers need to stay focused on the final selling price.
  • Customers fail to get pre-qualified for a loan, and rely on the dealership’s finance department to tell them what they qualify for. Stop by your bank and find out what interest rate you qualify for, then see if the dealer's finance department can match that or offer lower rate. You may be able to convince the dealer to include gap insurance or extended warranty if you use their financing.
  • Skipping the test drive.

In what circumstances is leasing a smarter option than buying?

If lease payments will be considerably lower than financing with a purchase loan, or if you trade vehicles in for a new model every 2-3 years. Cons -- you do not own the vehicle at the end of the lease, and you may have to pay penalty if you exceed mileage limits.

Generally, what percentage of take home pay should go to car payments?

In my opinion, 10-15 percent.
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Sreedhar T. Bharath

Richard C. Kraemer Professor of Finance in the W.P. Carey School of Business at Arizona State UniversitySreedhar T. Bharath What are the most common mistakes people make when shopping for a car?
  • Not negotiating the price of the car separately from how it is to be financed -- two separate decisions. Car dealers deliberately mix both and gain at expense of the buyer. One common example is negotiating lease payments per month.
  • Not having financing lined up before shopping for a car.
  • Not cleaning up their personal credit report before financing and purchase.
  • Not having personal clarity on lease versus buy..

In what circumstances is leasing a smarter option than buying?

If the person is a type who values driving the latest model over asset ownership, or if their job requires to project success to clients (e.g., real estate agents) by choice of the latest high-end car, so that clients have confidence. In general, the longer you plan to hold on to the car, the more attractive buying becomes.

Generally, what percentage of take home pay should go to car payments?

25 percent is recommended for mortgage, so I would say, 10-15 percent, including insurance and repair payments, which most buyers ignore and solely focus on loan or lease payments.
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Vid Ponnapalli

Founder and President of Unique Financial AdvisorsVid Ponnapalli What are the most common mistakes people make when shopping for a car?

The most common mistake, in my view, is committing to a car that does not fit well with their overall financial objectives. In other words, it is very common to get emotional and fail to weigh in and prioritize their car purchase goal alongside their other financial goals, such as saving for an emergency, saving for kids’ education, or saving for retirement.

A second mistake is when considering a loan to finance the purchase -- people tend to focus more on the terms of the deal, as opposed to understanding how the monthly payment could impact their cash flow. In other words, they often fail to make an informed decision about whether they can cough up a regular payment out of their paycheck month after month, for the entire duration of the loan.

Lastly, it is not uncommon that people often ignore the burden of expenses associated with owning a car. For example, expenses for gas, repairs and maintenance, insurance, tolls, and parking quickly add up -- making the true cost of car ownership much higher than the sticker price. It is definitely worth paying attention when you are shopping for a car.

In what circumstances is leasing a smarter option than buying?

Generally speaking, lease payments are lower than loan payments -- making leasing a better option when you cannot afford to pay high monthly payments. This is because unlike a loan, monthly payments for the lease are not based on the full price of the vehicle. Instead, they are based on the difference between the vehicle’s price and the residual value at the end of the lease term.

Generally, what percentage of take home pay should go to car payments?

It is hard to put a specific number, because everyone’s circumstances are unique. That said, here is a guideline: your total vehicle expenses -- the loan or lease payment plus all other related expenses, such as gas, repairs and maintenance, insurance, tolls, parking -- should not exceed 20 percent of your take-home.
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Justin Nichols

President and Chief Operating Officer of Garrett Investment AdvisorsJustin Nichols What are the most common mistakes people make when shopping for a car?

I think the most common mistake is that people tend to focus on a monthly payment they believe they can cash flow, but that doesn't necessarily mean they can truly afford the car. Meaning, people convince themselves they can "afford" a new car because they can make the car payment, but they don't take into account the opportunity cost of having that monthly payment. They should instead be saving more (for example, saving to be able to pay cash for a car they can truly afford), and/or paying down other debt to truly improve their long-term financial situation.

Related to this, people tend to extend the length of a car loan to make the monthly payment lower (more "affordable"), and in doing so, they are paying more interest than they should. It's possible to get a 96-month car loan today, which is 8 years’ worth of payments. Most people don't even drive their cars for 8 years before trading them in and, if they do, they still paid way too much in interest over that 8-year time period!

In what circumstances is leasing a smarter option than buying?

I believe buying a car is almost always going to be less expensive, all-in, than leasing a car. Leasing means an individual will effectively always have a car payment, which, as I mentioned above, carries a high opportunity cost by preventing one from saving for other financial goals.

Generally, what percentage of take home pay should go to car payments?

If an individual's situation necessitates a car and they don't have cash set aside to purchase the car outright, I recommend getting a car loan that is no more than 36 months in length. Taking out a loan for a depreciating asset is not ideal, but forcing the loan to be no longer than 3 years will mean less total interest paid, and even more importantly, it should force the buyer to purchase a reasonably-priced car. If an individual can't afford the monthly payments on a 3-year loan, then they should shop for a less expensive car. Ideally, I recommend that people set up an escrow savings account for future car replacement. This will ensure one has the necessary funds to pay cash, instead of having to take out a loan to pay for a depreciating asset.
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Kevin Talty

Financial Planner at Lighthouse Financial Advisors, Inc.Kevin Talty What are the most common mistakes people make when shopping for a car?

Not shopping enough, and only going to one dealership and taking the price that the dealer offers -- try and bargain, see what other prices are in the market for the car you are looking for. Be open, try not to lock yourself into needing one specific car and not settling for anything else. Can you find a certified pre-owned one with a few thousand miles, and get a few grand off the ticket price?

In what circumstances is leasing a smarter option than buying?

Two reasons:
  • Short Term Fix: You don’t have enough money to make a purchase worth it, and you need payments that are lower than that of the loan offering. This can buy you some more time to save.
  • If the above applies and you don’t drive a ton. If your job is 50 miles away, then you’re going to scream over the typical 15,000-mile limit per year. This is where people really get into trouble, and their only way out is to purchase the car. Be practical -- do you drive more than the average person? If you do, cross the lease option off of the list.

Generally, what percentage of take home pay should go to car payments?

As little as possible is the best way to play it. This is all about cash flow -- maybe you have low rent, so you can afford a higher payment or conversely, maybe you’re in an expensive New Jersey town and there isn’t much free cash flow to afford for a car. Everyone is always looking for the magic number when it comes to finances -- take-home to car, mortgage, amount to save, amount needed to be saved to retire. There are quick calculations that can be done to find these numbers, but only after knowing at least some of a person’s or couple’s financial situation. If you go out to eat a lot -- your car payment will most likely need to be lower than for a person who is cooking at home, in the kitchen.
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Doris Sikora

Associate Professor of Family and Consumer Sciences Education at Western Kentucky UniversityDoris Sikora What are the most common mistakes people make when shopping for a car?

The most common mistake people do when shopping for a car is to start shopping too soon. They want to just look, but then “get the bug” and end up purchasing before they are financially ready.

In what circumstances is leasing a smarter option than buying?

Maybe for the short term, if you found a really good bargain.

Generally, what percentage of take home pay should go to car payments?

Generally, no more that 15 percent of your income.
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Kelly L. Trageser

Founder & Principal at Sea Clear Financial Planning, LLCKelly L. Trageser In what circumstances is leasing a smarter option than buying?

One often-overlooked circumstance, when leasing a car can be a smarter option than buying a car, is during retirement. Leasing a car allows retirees to have a monthly payment throughout their retirement that can be factored into their total living expenses. Often, retirees make the misstep of withdrawing large amounts from their portfolio to either cover a down payment, or to pay the full purchase price of a car. This move can have a significant impact on a retiree’s investments, and causes the portfolio to be depleted faster than expected.

Another circumstance where leasing a car can be a smarter option than buying a car is if you own a business. Often, when you lease a car, a portion of the cost can be deducted on your taxes. The IRS has guidelines on the amount that can be deducted based on your business percentage use of the car, cost, gas and mileage. Nevertheless, this move can have a compelling impact on the bottom line -- saving thousands of dollars each year on taxes.
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Pamela Stigall

Instructor of Family, Consumer and Technology Education at Ball State UniversityPamela Stigall What are the most common mistakes people make when shopping for a car?

Failing to do diligent research for the car. This is extremely important. You must research the fair price, repair history, consumer reports or the like, financial options, etc. I think people get the “green-eyed monster” and are excited about a vehicle at the store. I know, I can get excited as well when buying a vehicle. It is important to have your research to help you make informed choices/decisions.

In what circumstances is leasing a smarter option than buying?

This is a personal decision, and if after doing your research, you feel this is the better option for you, then go for it. Over the long run, it may be a more costly option, however, if you are using the vehicle for personal use.

Generally, what percentage of take home pay should go to car payments?

I like to use a lesser figure, so individuals don’t overextend themselves and still have money each month for savings. So, I would say about 10 percent.
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Richard Feight

Owner at IAM FinancialRichard Feight What are the most common mistakes people make when shopping for a car?

Buying something they can't afford. A car is supposed to be transportation first. If you can afford something beyond basic transportation, great. But if you stress the cash flow too much, you'll not be able to focus your hard earnings on things you enjoy, like maybe travel or watching live NCAA basketball games.

In what circumstances is leasing a smarter option than buying?

If you're older and can afford it, it might be better to lease than buy, for reliability reasons. But most millionaire-types pay cash for their vehicles and drive them a long time, 11 or more years.

Generally, what percentage of take home pay should go to car payments?

None. Pay cash. But if you must, I'd keep payments far less than 10 percent, and make sure you don't finance it more than 3 years, maximum. Any longer, and you've adjusted the path of your finances.
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Jim Blankenship

Founder and Principal of Blankenship Financial Planning, Ltd.Jim Blankenship What are the most common mistakes people make when shopping for a car?
  • Using emotion to drive the shopping experience. In the end, a car is transportation -- it won't improve your sex life or make you money, it's all about getting you safely from one point to another.
  • Shopping based on how much you can afford to pay in monthly payments. In today's world of long-term car loans (more than 36-48 months), people are unrealistically taking on much more automobile cost in the long run than they can handle.
  • It's not a "given" to have a car payment, as many folks believe. It should be a goal to save up to pay a significant amount against the purchase price to keep any required loan to 36 months, if possible. This is because many autos have lost so much value by a 3-4-year mark that you're underwater (loan is more than the car is worth), and the cycle will simply continue if you trade at that stage.
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Lisa Moyer

Assistant Professor of Human Development and Family Studies in the Department of Counseling, Leadership and Educational Studies at Winthrop UniversityLisa Moyer What are the most common mistakes people make when shopping for a car?

I would say that the three biggest mistakes people make when shopping for a car are only visiting one dealership, focusing only on the monthly payment instead of the big picture (how much they’ll pay for the car over the life of the loan), and not taking a long test drive so they can see how the car turns, how it handles when backing up or parking, and how it accelerates and brakes.

In what circumstances is leasing a smarter option than buying?

Lease car payments are almost always lower than purchase payments, so this is a big factor in determining which option is better. The other major factors include how much driving they do and building equity. The buyer is responsible for paying extra for going over the mileage allotted to a lease (typically 10,000-12,000/year), so if a consumer does a lot of driving, particularly long road trips, this may not be the best option for them. Finally, consumers need to ask themselves whether they want to own the vehicle after the life of the loan. When leasing, after the lease period is over, the consumer decides whether to purchase the vehicle, or start leasing a new one. If they prefer to own the vehicle after making payments, it makes more sense to purchase the vehicle in the first place.

Generally, what percentage of take-home pay should go to car payments?

Affordability varies by individual and depends on their financial resources and current liability obligations, but generally, one should not spend more than 10-15 percent of their take-home pay on a car payment, or it is considered “unaffordable.” This amount of money should include a car payment, insurance, and gas.

Community Discussion

While WalletHub’s Car Payment Calculator can be eye-opening, it’s also helpful to leverage the WalletHub community. Our members have a wealth of knowledge to share...show moreshow less

Leverage the expertise of the WalletHub community to make better decisions.

Lorenzo Downing @lorenzod_8
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I'm a 13 months in a 40 month car payment.. I'm in way over my head I realize that. What can I possibly do to save myself from this bad car loan before I get any deeper?

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@WalletHub
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If paying your auto loan has become impossible and you believe you are going to default, there are certain things you can do to lessen the negative impact. The most important first step is to speak to your lender before you miss any payments. This way, you’ll avoid serious credit damage. Banks are willing to modify your auto loan if you are struggling and reach out to them in good faith. If what you’re experiencing is temporary financial hardship, you can try to lower your payments for a short period of time -- you might even be allowed to temporarily pause your payments. If you have strong credit, you may be able to refinance your loan. If your money troubles seem to be long-lasting, your options are less good. They include trading in your car, letting another buyer assume your loan, or selling your vehicle for enough to pay off your loan. If all else fails, you may allow your car to be repossessed as a result of missed payments, or file for bankruptcy. However, these last two options would put a serious derogatory mark on your credit. Hope this helps!

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Brandon Wingrath @brandonw_54
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You can trade down, but only so much. That may lower your payment or ask the lender they may work with you

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William Wells @williamw_376
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I am thinking of paying off my car early. It is my only debt at 13k. I have an 813 credit score. Will this help or hurt my credit?

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@WalletHub
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A car loan is an installment loan -- it requires that you pay the same amount each month for a set period of time until you’ve paid off the full loan amount. Installment loans diversify the types of debt you accrue and pay, which account for approximately 15 percent of your credit score. Paying them on time as agreed will positively impact your credit score. While it may seem like paying off a debt early would drive your credit score up, it actually has little impact. Once you pay it off, an open account becomes a closed account – and open positive accounts, i.e., a record of steady payments throughout the life of the loan may be more beneficial to your credit score than closed accounts. The reason is that approximately 35 percent of your credit score is based on your payment history. Open accounts show how you are managing your credit currently, rather than just how you have managed it in the past. If you are still in the process of trying to establish credit, it may be more beneficial to leave your car loan open a while longer. Still, paying a loan off early can save you money by eliminating interest fees over the life of the loan. So, if your goal is to save money in the long run, you should go ahead – just make sure your loan agreement does not include any penalties for paying the loan off early. If you have always made the payments on time, the account will still have a positive effect on your credit history, even after it’s paid off and closed. Hope this helps!

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Jeff Becker @jeffb_73
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I'm 73 and getting ready to buy or lease a car. I've leased before, but at my age it is recommended I buy. Any thoughts?

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Wayne Campbell @waynec15
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I would like to pay off all my debt and purchase a new vehicle

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Mabel Cline @mabelc_5
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I owe $20,000 on my car. I would like to buy a newer car. What is the best way to go about this?

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Ilona Billing @ilonab_1
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What is a better deal: Buying a car with a finance balance of $17,771.47 and a interest rate of 2.9 and monthly payment of $203/Mon or one with a balance of $19,771.47 and a 0% interest rate with monthly payment $222.00 o month. Each loan is for 60 months and the loan is for $12,000 with $6500.00 down payment

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Karen Taylor @karent_77
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Should I buy a new car or a used car. I enjoy keeping the same car for years. I currently have a 2007 Honda Odyssey with 155000 miles. I liked saving the dollars after paying it off. I like the space of a minivan or SUV but no longer want a minivan. I'd like to get a car that will last longer than 155000 before trouble. I am on a budget and would like to keep the payments around $450-$500. Should I opt for a better car such as a used Lexus NX or BMW X3? Is there a new car that provides space and feels luxurious?

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Lesley Knox @lesleyk
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4 month

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