So you finally decided to buy your dream car. Maybe it’s that shiny red sports car – you know the one that looks like it is going 500 mph even when it’s standing still. Or, maybe it’s that heavy-duty off-road behemoth of a pickup truck – the one capable of hauling a gazillion tons.
Whatever the case, everyone has a dream car. The trick is determining whether you can really afford it.
How much should you pay each month?
Too many car buyers overestimate how much they can afford each month. In reality, your car payment should not exceed 10% of your monthly take home pay – and ideally it really should not be more than 5%. Take note: this includes all your car payments – regardless of whether you are paying for one car or three.
At UsedCars.com, we offer a car affordability calculator. Simply enter in how much you would like to pay each month, along with a couple of other minor details (like interest rate and the amount of money you are putting down), and we can help approximate a price that matches your budget.
How much is the new car really costing you?
- Insurance: If you are taking out a loan on a new or used car, you will probably incur a higher car insurance rate. Before you sign the final paperwork, call your car insurance company to determine the insurance rates for that specific vehicle.
- Impact at the Pump: Are you trading in a compact car for a larger family sedan? What you are paying at the pump might end up costing you more than you suspect. Visit FuelEconomy.Gov to compare the fuel efficiency between vehicles.
- Unscheduled (and even scheduled) Maintenance: For used cars, simple maintenance items, like new tires, tire rotations, oil changes and wiper blades, may require your attention sooner than you suspect. Even if you are buying new, your vehicle’s scheduled maintenance requirements will be a noteworthy monthly expense.
Remember: being approved for a new or used car loan is not the same as being able to afford a new car. Before you agree to any monthly payments, take the time to ensure that this new expense won’t stretch your bank account.