The car you want and the car you can afford are often very different things. Not everyone has the kind of income to buy a new vehicle at a moment's notice. In fact, most Americans do not have the luxury (or budget) for such purchases.
Regardless, you can still get into the best possible vehicle for your budget. I'll share a few tips and strategies for determining how much you can afford to put toward a vehicle purchase. This will help you narrow your options when working with a dealership or independent seller.
Understanding the difference between a car you want and a car you can afford
What Is Your Income?
Your income is the driving factor in how
What Is Your Credit Score?
Income is only part of the equation; your credit score plays a big role as well. Many 0 percent financing offers car dealerships tout only apply to shoppers with excellent credit, so if that isn't you, you may end up paying more each month than you expected. Do a little research on what your credit score qualifies you for so you aren't surprised when you sit down to apply for financing. The last thing you want is to be faced with high-interest offers that make the car you have in mind unrealistic.
What Are the Costs Associated With Ownership?
A car itself is only one part of the equation of car ownership, so if you're budgeting for a car and a car alone, you may be overlooking some serious costs down the road. In many areas around the country, car insurance can be $100 or more per month, and potentially several hundred if you have a family or are insuring multiple vehicles. In addition, gas, annual inspections, and repairs and maintenance can get very pricey, very quickly, adding additional expenses to your monthly payment.
Also, leasing or financing your vehicle purchase changes the costs associated with ownership. While both options have benefits and drawbacks, uncovering which is better depends on your preferences. Find out if it is better to lease or finance a car with this infographic.
How Much Can You Put Down?
A down payment is one of the best ways to reduce
Much Car Can You Afford?
So you've determined the factors that go into a car purchase, but what do they mean for you? Well, that depends on who you are and what you want.
The total amount your car costs should not exceed 10 percent - 20 percent of your annual income. This includes all associated costs, like financing charges, insurance, fees, gas, and repair bills. Get an idea of what this sum means for you, and break it down accordingly. If you make $3000 per month, no more than $300 to $600 should go into your car. If you find a great financing option for $350 a month, but insurance is $200 and gas is $100, this car is likely not in your budget, even if the opportunity sounds too good to pass up.
In order to answer the question "How much car can you afford?", you need to look at many factors, including your income, credit score, down payment, and geographic location. By determining what goes into the car buying process, you'll be better able to identify how much you can afford, making a stressful process just a little bit easier.