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You’ve made the decision to buy your next vehicle. Hooray! It doesn’t matter if it’s the car of your dreams or a more modest set of wheels. Your budget is the most important factor to consider, and it is the first decision you must make before beginning the car-buying process. If you plan ahead of time and figure out what you want to buy before going car shopping, you can make the best financial decision for your finances. Depending on your situation, financial experts recommend that your monthly payment be between 10% and 15% of your monthly take-home pay.
In addition, your monthly car expenses should not exceed 20% of your monthly income. This includes your car payment, insurance, maintenance, and gas costs.
When determining how much car you can afford, there are numerous factors to consider. No need to worry; we’ll crunch the numbers for you to determine the best car budget for your situation. If you want to see how much car you can afford, use the calculator to change the loan term, down payment, and trade-in value.
Know how much money you have to spend on a car.
It is critical to understand how much money you can afford to spend on a car. When determining how much car money you have, there are a number of factors to consider. Your down payment, monthly payment, loan term, whether or not you’re trading in a car, and credit score are all factors. Getting estimates for things like car insurance or annual maintenance costs is another way to figure out how much you’ll spend on your vehicle over time. Examine each factor to see how it influences the cost of your vehicle.
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Monthly Payments
Because it is recommended that you spend no more than 10% to 15% of your monthly after-tax income on a car payment, the amount of your monthly payment has a significant impact on the type of car you can afford. If you earn $3,500 per month, your car payment should be between $350 and $525.
By extending the term of your loan, you can reduce your monthly payment and bring it into line with your monthly budget. It’s critical to keep in mind, however, that a longer loan term will result in higher interest payments over time.
Down Payment
The amount of money you can put down on a car allows you to buy a larger model. Because new vehicles depreciate quickly, most experts recommend putting at least 20% down on a car. A 20% down payment will keep you from falling behind on your loan (owing more than the car is worth) in a few years.
