Dec. 2, 2022

How Much Car Can You Afford?

Are you in the market for a new car and aren’t sure what you can actually afford? Well, you’re in the right place. Thankfully, nowadays, we have easy resources such as this car affordability calculator on Cars.com. This calculator will ask things like your monthly payment, your down payment, trade-in value, length of the loan, APR, and sales tax.

Once these are filled in, it will generate a list of cars perfectly tailored to your needs. However, if you’re looking to personally dive a bit deeper on how to determine what you can afford right now, let’s go over the key steps.

Calculate your budget

What do your monthly expenses look like? Take a few minutes and jot these down to get an idea of what you’re typically spending. Whether it’s rent, mortgage, groceries, or child expenses, you’ll want to know the ballpark range. Once this is added up, calculate what you have leftover. It’s recommended that you spend no more than 10% of your take-home pay on your monthly loan.

Calculate the loan amount

Speaking of loans, you’ll want to calculate what you can afford here as well. You can do this by checking your credit score, the loan term, and if you’re buying new or used. Finding a calculator to do so will work backward to determine what you can afford.

Fuel and insurance costs

Before you bite the bullet, it may be wise to determine what your future fuel costs and insurance will cost you. These costs will vary greatly depending on where you live, your history, and the type of car. It’s no secret that some cars simply cost more to fuel up and insure, so figuring this out before you make the decision may help you cut costs in the long run. As far as insurance rates go, you’ll want to contact your insurance company to get an estimate. Generally, you’ll want to stay below 7% of your monthly paycheck.

What are your buying patterns?

When it comes to the buying patterns of your past cars, it can be beneficial to examine them. Do you tend to only keep a car for a few years before getting bored with it? If you have a habit of trading every couple of years, it may not be wise to get a car with a five-year loan. If you like to switch up your cars, it may be best to lease. If you’re interested in a more financially sound decision, pay off a lightly used car and keep it around for years. With it being lightly used, you won’t have to worry about repairs for a while.

Factor in the extra costs

You’ll want to consider that the price you’re seeing on a website or on a window sticker isn’t exactly the price you’re going to be putting down. Fees and sales tax may bump it up quite a bit. This can typically be estimated by adding another 10% on top of the listed price. Depending on where you reside, sales tax will typically range from 5% to 10%. The same goes for registration fees. You’ll want to visit your state’s DMV site to determine what they charge. Additionally, documentation fees can run from $80 to $400. With this in mind, if your budget calls for a $30,000 car, you’ll want to be searching in the $27,000 range.

How much can you afford?

Factoring in what you can afford can be done simply with the multitude of resources we now have. Using a car affordability calculator is a quick and easy way to get started today. Once you’re in your ballpark range, you can start examining your past buying patterns, your budget, and the extra costs you’ll need to account for. Your only next step will be going to your local dealership or seller to pick up your new ride. Happy searching!

Sources:

https://www.nerdwallet.com/article/loans/auto-loans/much-spend-car

https://www.edmunds.com/calculators/affordability.html

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If you’re located near Omaha, Lincoln, and Kansas City and have a weak or nonexistent credit score, you are a likely candidate for no credit car loans. However, lenders will still have minimum eligibility qualifications for bad-credit auto loans.

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