If you’re in the market for a new vehicle, you should determine what you can actually afford and understand the total costs involved.
Consider the following factors when calculating your car budget:
The Total Cost of The Vehicle
The total cost of your vehicle is more than just the sticker price; it also includes things like sales tax, title and registration fees. Remember that you will also need to have money to pay for auto insurance, gas, regular maintenance, repairs, and other costs associated with owning a car.
How Much Can You Afford Each Month?
If you’re financing a vehicle, then you’ll need to figure out how much of a monthly payment you can afford. Keep in mind that your monthly payment will include both principal and interest. The loan term, interest rate, and down payment will all affect your monthly cost.
How Much Can You Put Down?
Most vehicle purchases are made with a down payment. The more you can devote to your down payment, the lower your monthly car payment will be.
The 10%–20% Rule
To avoid overextending your budget, devote only 10% of your income towards your vehicle. This means if you make $3,000 per month, you’ll want to spend $300 per month on your car payment.
If you’re not planning on financing your new car, then the 10%-20% rule still applies. You’ll want to take 20% of your annual income to determine what you can afford to spend on a vehicle. For instance, at $36,000/year, you’ll be able to spend $7,200 yearly on your vehicle ($36,000 x .20 = $7,200).
Factor In Your Debt
If you currently have a lot of debt, there is a simple rule to follow. Consumer Reports found that it is best to spend no more than 36% of your gross monthly income on debt. Itemize what all of your monthly debt payments add up to, including mortgage, credit cards, and loans. Once you’ve totaled those, subtract them from 36% of your income to determine how much you can realistically add. For instance, if your income is $3,000 per month and you already spend $800 per month on credit card and loan payments, you can only afford a new monthly auto loan payment of $280, calculated as ($3,000 x .36) – $800 = $280.00.
If you’re in the market for a quality car, please browse our inventory today! Our dedicated team will work with you to finance a vehicle you can afford, even if you have credit issues! Click here to get approved today!
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