6 Ideas to Figure Out How Much Car You Can Afford

For most people, purchasing a car can be an exciting yet major decision. Finding a place in your budget for your desired car requires more than just a thought. This is because the costs of owning a car continue after you drive off from the dealership.

While there’s no specific figure you should spend, these ideas will help you estimate how much you can really afford. Understanding your limits will save you from digging yourself into a financial hole. Here’s how to determine what those limits are.

1- Calculate Affordable Payments

The only way to know how much to set aside for car payments is to understand how much you have. This figure shouldn’t depend on your salary but rather on the amount you take home after taxes.

Experts advise that your monthly car payments should be about 10% of your earnings.

2- Determine the Appropriate Loan Amount

Now that you know the monthly payments you can afford, it will be easier to estimate how much to borrow.

The loan amount you can access will depend on factors like:

Whether the car is new or pre-owned, the Annual Percentage Rate (APR) is lower when buying a new car.
The loan term
Your credit score—lenders will use it to determine the loan amount and APR

Be realistic about how long you wish to continue the monthly payments. If you’re buying a new car, keep this duration at 60 months or less, and 35 months for used vehicles.

3- Specify a Target Buying Price

An estimate of the loan you can access gives you a realistic idea of the car you can afford. Remember, the overall car cost includes sales fees and taxes, which are about 10% of the car price. There are also documentation and registration fees, which differ by state.

4- Calculate Insurance and Fuel Costs

Fuel and insurance costs are recurrent, so it’s vital to factor them into your budget. Some vehicles consume more fuel and cost more to insure, which you can use to compare different cars.

5- Evaluate Your Purchase Patterns

Besides knowing how much you can afford, it’s essential to understand your buying habits. Perhaps you avoid overstretching and prefer paying off a loan within a short time. If this sounds like you, buying a new car will work best.

You may prefer making financial decisions based on your current financial status. In this case, the best move is to buy a pre-owned car that you can repay and own for many years.

6- Compare Vehicles

With how much you can afford in mind, it’s time to have fun car shopping. Your starting point should be comparing cars that align with your budget.

New vehicles boast updated features, reduced maintenance costs, and great warranties. However, the depreciation rate is faster, and the price tag is higher.

Pre-owned cars are more affordable, but you can expect a shorter warranty and higher maintenance costs.

Get a Car You Can Afford

Purchasing a car is a bold move that you shouldn’t take lightly. It’s essential to begin the process with enough preparation and a reasonable budget.

Ensure you make the most reasonable financial decision based on your financial status. Have a set budget and factor in future costs and expenses to avoid financial stress in the long run.