How to make sure you buy a vehicle you can afford

With all the offers of 0 interest and dealer incentives these days, it’s very easy to get carried away when shopping for a new car. Since your vehicle is the largest purchase you’ll make besides your home, it’s a good idea to do your homework before you buy.

Before you even begin looking at cars, start by developing a preliminary budget. Knowing how much money you can realistically spend will help you determine what vehicles you should even be evaluating.

Car-buying is an emotional experience. We all love the smell of a new vehicle. It is so easy to get caught up in the emotions of the purchase and overspend.

One of the biggest mistakes car buyers make, according to the experts, is buying a car they qualify for and not one that they can afford. Although you may qualify for a loan to buy a $50,000 vehicle, that doesn’t necessarily mean you can afford it. Making this mistake at the very least means you’ll be skipping vacations and other extras. At the very worst it means you could end up ruining your credit or filing bankruptcy.

Remember that qualifying for a loan only means that you have satisfied the bank's or other lender's concerns about your ability to repay it. Lenders determine your ability to repay based on mathematical formulas. Some use data on your credit report and others determine how much you can pay by your debt-to-income ratio.

Start shopping for your financing before you buy, and be sure to ask each lender who they will determine your credit worthiness. If they use the debt-to-income ratio method, be aware that this method will determine what you can pay, but a determination based on your credit report is likely to provide the lender, and you with a more realistic figure.