How Much Can I Spend on a Car?
Do you ever ask yourself the question, “How Much Can I Spend on a Car?” For most people, after a house, a car is the most expensive thing they will ever buy. This means that our vehicles are a major part of our budget and need serious consideration before making a final purchase decision.
Here are a few things to consider when trying to decide how much you can spend on a new car.
Experts recommend that you should not spend more than 15% of your net monthly income on a car, as long as you have no other debt other than a mortgage—this includes the car payment, insurance, gas, and repairs. If you do have other debts, your total monthly payments for everything (student loans, credit cards, mortgage, car payment, etc.) should not be more than 36% of your monthly pay.
To give you a good starting point, look at a price point no more than half of your total annual income. For example, if you make $50,000 a year, a car with a price of $25,000 should be at the top of your price range.
Online affordability calculators are another great tool to give you a good starting point and see how much you can afford.
In the end, even if the numbers tell you that you can afford a car payment at the top of your price range, you need to decide for yourself if you want to live at the brink of your budget, or if a more conservative choice would be better for your lifestyle.