So you’ve decided to buy a car. You may feel like this has been in the works for months, or perhaps even years. After all, you’ve had your eye on that 2018 Ford F-150 Raptor for some time now, and chances are it’s high on your “To-Buy” list. Great! It’s a sweet truck.

But before you buy, ask yourself a question: “Do I have the money to purchase this car outright?”

If you answered no, congratulations! You’ve decided to get a loan to finance your new vehicle purchase. But because this is such an important decision, it feels best to discuss some things that many people don’t think about before taking out a loan.

Know how much you can afford

Before applying for any type of financing, you should determine how much money you can afford to pay toward your monthly car payment. As a general rule when deciding this figure, you shouldn’t spend more than 30% of your annual income on a car. In addition to thinking about how much you want to spend in total, it’s important to consider how much you can afford to pay each month in monthly repayments. To determine this, you should make some calculations to be sure you are financially independent enough to purchase a car.

How are you going to finance it?

Once you have determined how much you can afford to spend on a car, the next step is determining how you are going to pay for it. If you want to buy a new car, chances are the only way this will happen is by financing your purchase.

If you are willing to take out an auto loan or some type of financing product to purchase your car, the interest rate will be the most important factor in your decision. Before you think about how many years it will take to pay off the loan, consider what happens if you can’t make a monthly payment. Not only might this cost you extra money in fees, but it will also affect your credit score negatively – which could make it harder to get approved for future loans.

It’s a good idea to shop around, and if you’d like to do so online you can compare loan options with Driva.

New or used?

If you plan to finance your car, you’ll need to determine whether or not you want a new or used vehicle. If you go with the latter, chances are it will be easier and cheaper for you to secure financing, but bear in mind that it might end up having higher monthly repayments because these cars depreciate more rapidly than newer models. If you decide to go with a brand new car, consider the fact that it may be challenging to secure financing for this type of purchase because banks and other traditional lenders usually prefer used cars as collateral.