Driving

How much car can I afford? [free calculator]

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You’re ready to buy your next car. Hooray! But will it be the car of your dreams or a more modest set of wheels? The deciding factor — and the first thing you need to make before starting the car buying process — your budget. By figuring this piece out in advance, when it comes time to actually buy a car, you can make the best decision for your finances. Financial experts recommend that your monthly payment should be around 10% to 15% of your monthly take-home pay. Additionally, your total monthly car expenses should be no more than 20% of your monthly income, and this includes your car payment, insurance, maintenance and gas.

Many factors go into determining how much car you can afford. Don’t worry, we’ll crunch the numbers for you to figure out the right car budget for you. You can adjust it based on your loan term, down payment and trade-in value to see how much car you can feasibly buy.

Car affordability calculator

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Understanding what kind of car you can afford

Factors like your down payment, monthly payment, loan term, whether or not you’re trading a vehicle in and your credit score are all helpful in calculating how much car you can afford. Additionally, getting estimates for other car-related expenses like your car insurance or annual maintenance can give you a better picture of how much you’ll spend on your car over time. Read up on each factor to learn about how they affect your car budget.


Monthly payment

Because it’s recommended you spend no more than 10% to 15% of your monthly after-tax income on your car payment, your monthly payment will significantly influence the kind of car you can afford. If your monthly take-home pay is $3,500, then that means that your car payment shouldn’t exceed $350 to $525.

You can lower your monthly payment so that your payment better fits your monthly budget by choosing a longer loan term. However, it’s important to keep in mind that a longer loan term means that you’ll pay more in interest over time.

Down payment

The amount of money you’re able to put down on your car purchase helps you afford more car. Most experts recommend that you put at least 20% down on a car because new cars depreciate quickly. A 20% down payment will prevent you from going upside-down (owing more than your car is even worth) on your loan in a few years.

Loan term

The loan term, or length of your loan, influences how much you end up spending on your car. Shorter loan terms mean higher monthly payments but less money paid in interest over time, and longer loan terms mean lower monthly payments and more money paid in interest over time. If you’re interested in paying less overall, a shorter loan term is best if you can afford it. But if you need to make your monthly payment more affordable, a longer loan can help you do that.

Trade-in value

Trading in a car can also help you afford a more expensive car or make it so that you need to borrow less money. For example, perhaps you want to purchase a $22,000 car and you’re trading in a car with a trade-in value of $8,000. If you’ve paid off your trade-in, that $8,000 would make your net car purchase only $14,000.

In the event you haven’t paid off your trade-in but have a small amount left on your loan, the dealer will buy out the rest of your loan using some of your trade-in value. Using the same example, if you had $2,000 remaining on your loan, this would be subtracted from your trade-in value. Then only $6,000 would be credited toward your purchase, making your net purchase price $16,000.

Credit score and loan interest

Your credit score impacts the interest rate of your car loan and ultimately influences how much you pay for your car in total. Higher credit scores tend to have lower interest rates, but the type of car you’re buying can also affect your interest rate. Used cars tend to have higher interest rates, while new cars have lower rates.

How much car can I afford based on salary?

Basing your car payment off of your current salary is one way to estimate how much car you can afford, but using your actual take-home pay amount will give you more accurate insight into how much you can actually spend. In case you only know your annual salary off the top of your head, use the table below to get a general estimate of your monthly car payment.

 

Estimated monthly car payment based on salary

Annual salary (pre-tax)

Estimated monthly car payment should not exceed

$25,000

$208 per month

$50,000

$416 per month

$75,000

$625 per month

$100,000

$833 per month

$125,000

$1,042 per month

$150,000

$1,250 per month

Consider your car options

If you can’t afford the car you want or need, it’s good to explore other options so you can still achieve your goals without going into debt. Keep reading to see how leasing and buying used can help you afford a car.

Leasing

Whether you prefer the look and feel of a modern car or constantly want the best that car technology has to offer, a new car may be the best fit for your goals. However, if you’re finding that you can’t afford the monthly payment to buy a new car, leasing may be a better option for you. You can lease the car you’d like for a lower monthly payment than if you were to buy the car, but there are caveats to keep in mind like mileage limits and the fact that any money paid toward the car won’t bring any value back to you.

Buying used

If you’re not picky about the kind of car you drive or you just want to prioritize your finances, buying used is an affordable path to car ownership. Used cars tend to be lower in price than new cars and will therefore have more manageable monthly payments. Additionally, their value also depreciates a lot slower and associated car expenses like insurance tend to be lower.

Buying new

Sometimes you just want that new car smell. If buying new is a top priority, make sure you do your research and compare car prices from different dealers. Buying a car is a process, so come prepared with fair market values of the car you want so you can negotiate the best deal. Additionally, consider purchasing a base model without all the bells and whistles if you have a more modest budget.

How to use the car affordability calculator

To use this calculator, start off with your preferred monthly car payment. If you don’t have one in mind, the calculator will make a conservative recommendation based on your monthly after-tax income.

Using this monthly car payment estimate or your preferred payment amount, select your desired loan term and the estimated average car loan annual percentage rate (APR). If you know your down payment amount or trade-in value, feel free to add those in for a more accurate estimate (these are optional for the calculator).

Once you’ve filled in your car purchase details, hit the “calculate” button to find out the estimated total car loan you can afford. If you’ve added a down payment or trade-in value, this will help increase your purchase power (the total amount you can buy) when it comes to buying a car. However, if you didn’t enter this information, your purchase power will equal your loan value.

Note: The loan value and purchasing power calculated in this calculator are only an estimate of what you may be able to afford. Additional expenses like sales tax and dealer fees aren’t included in this estimate. During the car buying process, it’s recommended that you look for cars with a sticker price that is about 10% less than the loan value you can afford to account for some of these expenses.

Before making the investment to become a car owner, it’s important to figure out just how much car you can afford to buy. Use our calculator to learn the estimated car loan value you can afford and get an idea of your purchasing power. This estimate will serve as a guide to help you make the best financial decisions during the car buying process. Once you’ve purchased your sweet new ride, don’t forget to take out a car insurance policy so that you can protect your well-thought-out investment.

 

Source: Experian

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