Are you buying too much car for your budget?

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Auto loan financing is suddenly available to people with damaged credit who may have been turned down for car loans as recently as a few months ago. But is that ‘yes’ to your credit app really a ‘yes’ in your monthly budget?

How to avoid buying too much car

Experian Automotive reports 60-day delinquencies rose to 0.77%, up from 0.72% in the same period in 2014. At the same time, auto loan debt climbed to $987 million in the fourth quarter, up 11.5% from the same quarter in the prior year.

Simply put, people are buying too much car for their budget. If your payments per month are too high to knock out the loan in 42 months, you’re buying more car than you can afford. Forget about those 60 month and 72 month loans that people love to do. The Wall Street Journal even once reported that some people take out eight-year loans!! Stretching a payment that long means you’re ‘upside down’ — owing more on the car than it’s worth. It becomes a vicious cycle where you’re always in a payment.

The reason people are stretching out loans so long is that they’re buying too much car and want to cap their monthly payments at $500 or less. But Consumer Reports says there are decent brand new cars for well under $25,000. Try buying less car, rather than more! If you’re buying a new car, be sure to see our new car buying guide. If you’re buying used, then you’ll want to read the used car buying guide.

The average price of a new car is between $35,000 and $36,000, which is a new high. That’s because people are tricking out their cars. You can easily take a car’s price up 50% from the base model without even trying. In the blink of an eye, a $20,000 car becomes a $30,000 car!

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Where should you get your auto loan?

One word: Credit unions. OK, that’s two words actually, but credit unions usually write car loans at 1.5 points below the banks and four points below what you’d pay at a dealership.

As an example, one local credit union writes 48-month loans on new cars at right around 1.79% now (42-month terms are still preferable.) You probably won’t see rates like that at a bank. On used cars, financing also starts at 2.39%. But as your credit score goes down, your rate goes up. So if you have real stinky credit, the highest you’ll pay is 11.49% at this particular credit union. Think about that spread. It really parallels the risk your credit poses to the lender.

Once you arrange your financing, if a dealership can offer you a better deal, you’d be wise to take it. But if you don’t do your homework first and pre-arrange your financing, you’re never getting a better deal at a dealership. You’re likely not even to get a good one.

Read more: Test Driving 101: The fine art of shopping without buying