When it comes time to look for a new car, there are a lot of thoughts that tend to enter the mind first: which car to get, what color, how much fun it would be to own. But the most important question really should be, “how much car can I afford?” A new vehicle is a large financial transaction that will have a long-term impact on your bank account, and without this information, it’s very easy to get yourself into financial trouble pretty quickly.
There are several ways to find out what you can afford in a new vehicle, and this is an exercise that should be done before you even begin thinking about what kind of car you may want.
If you need additional help figuring out the amount of money you can afford to spend on a new vehicle, there are online payment calculators that can be found to help you better prepare yourself.
And once you can get all of these things out of the way, you can move on to the fun stuff: driving your new car off the lot!
For starters, many experts say you should never pay more than 20% of your take-home pay (not your gross income) for a vehicle payment. So a good place to start would be to figure out exactly how much of your paycheck you actually have after taxes then take 20% out. That number should be the maximum you’ll spend.
These are all things to keep in mind when it’s time to seriously consider what car you want and how much you’re willing and able to pay for it. Hopefully this information helps you make a more educated decision.
There are a few other factors that should be taken into consideration as well, including ongoing costs like gas, insurance and vehicle maintenance, as well as one-time costs like a down payment, taxes and licensing.
And speaking of the down payment, it may be a one-time cost, but it’s a cost that will also directly impact the long-term amount spent on your vehicle. That’s because the larger the down payment, the lower your monthly payment will be, regardless of whether you go with a lease or a financing option. It’s best to find a happy medium that is a down payment you can afford but one that will help bring down your monthly payment as well.