Temptation can strike unexpectedly, especially at the car dealership. Car prices are climbing too fast for many car shoppers to keep up, and the lure of the "shiny and new" is causing buyers to extend their car loans to keep monthly payments down. Unfortunately, this strategy isn't working out for many borrowers. Case in point, a record 7 million Americans are 90 days or more behind on their auto loan payments. Risks of defaulting on a car loan include destroying your credit and even vehicle repossession.

bmw x3
You might have to put off that tempting new BMW X3 if the warning signs are there.

The best way to avoid these risks is to not buy a car that you can't afford in the first place. It sounds simple, but car salespeople have one job and that's to sell cars. Sometimes they'll make the car payments 'work for you' even though it isn't in your best interest. Here are four red flags that indicate you can't really afford the vehicle and should consider a less expensive model. 

1. You Take Out a Long-Term Auto Loan

long term car payment

Any car loan that exceeds 5 years or 60 months is considered a long-term loan. Terms over 60 months are relatively easy to find and the average car loan length has been increasing right alongside rising new car prices. The average car loan term was nearly 69 months for new cars, and for shoppers with bad credit, the average loan was 72 months. Just because longer-term loans are becoming more common doesn't mean they're a good financial move. Long-term car loans put you at risk by increasing your interest rate and your chance of being upside down on the loan due to depreciation. 

If the only way you can afford to purchase the car is by stretching out your loan terms to reduce the monthly payments, you should reconsider the vehicle you're buying. The extra interest can add up to hundreds or thousands of dollars over the course of the loan and the vehicle will likely depreciate faster than you can pay it off, leaving you high and dry if you need to sell or trade-in. Choose a vehicle that you can pay off in 60 months or less, even if it means going down a trim level or buying a used model. 

2. You Don't Have the Recommended Down Payment

car down payment in cash

Many car shoppers wonder if they can finance the entire cost of their new vehicle without any down payment. Just because it is possible doesn't mean it's a good idea. The inability to come up with a down payment is a warning sign you may fall behind on your car payments. Just one late or missed payment can result in vehicle repossession and a shattered credit report. Your interest rates will likely climb without a down payment, resulting in a higher overall cost to finance the vehicle.

When buying a new car, shoot for at least a 20% down payment or at least a 10% down payment for a used car. If possible, put off the car purchase until you have the recommended down payment available or go with a vehicle that is priced to make the down payment comfortable for your budget. 

3. Your Car Payments Exceed What you Save

savings vs. car

According to Business Insider, you shouldn't have a monthly car payment that exceeds the amount you're able to save every month. By spending more on a vehicle than you're saving every month, you're putting yourself at risk of staying broke because of your car purchase. The average car payment in the first quarter of 2019 was $554 for a new car and $391 for a used car. That first number (which is growing every year) is the reason so many borrowers are falling behind on payments. 

In a Forbes article, financial expert Jeff Rose recommends skipping the new car purchase to protect your financial security. "That new car smell? The feeling you get when you drive to dinner in your brand new ride? Those feelings are temporary; they’re fleeting. After a fairly short amount of time, the new car excitement turns into a mundane, uneventful reality."

4. You Have Nothing Saved for Emergencies

man with a flat tire

Even if your monthly car payment seems to fit into your budget, make sure you're factoring in the additional costs of car ownership - both the expected and the unexpected. Predictable expenses include fuel, insurance and routine maintenance like oil changes and tire rotations. Then there are unexpected costs like flat tires or replacing brake pads. According to AAA, the average cost of car repairs, maintenance, and tires is $99 a month for a new car. If your monthly budget can cover the car payment but nothing else, the car is too expensive for you. 

When you recognize these warning signs, you'll avoid the temptation to stretch your budget on a car you can't afford and you'll get peace of mind knowing you won't fall behind on your payments. Choose an affordable new car or buy used for a great deal that lets you bypass most of the vehicle's depreciation. Instead of only looking at the monthly car payments, consider the entire cost of financing the vehicle including interest. The new car smell only lasts for a few days, but you'll have to live with your car payment for years. 

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