Take these steps to calculate how much car you can afford based on your income or salary
When you are thinking about buying a new or pre-owned car, you will probably need to consider many different factors. For instance, you want a car that can fit your family and suit your lifestyle. Or perhaps you desire a vehicle with the latest bells and whistles.
Another one of the main factors most people must consider is affordability, what type of car you buy or lease without breaking the bank.
At Bryant Motors, our auto financing experts aim to help you find the perfect car to suit your needs at a price that will make you happy. If you’re in the Sedalia area, we invite you to stop by anytime to discuss your finances, or give us a call. For a more detailed car payment quote, use our auto payment calculator.
Continue reading to find some tips for determining how much you can wisely spend on a new or used car.
Step 1: Consider Your Budget
One of the first financial factors you‘ll want to consider is your budget. Sit down and carefully go over your finances. Consider what you spend each month on housing, utilities, debt, medical expenses, food and entertainment. Decide how much room you have in your budget for a car payment and come up with a comfortable payment amount.
If you already have a car payment, you will need to figure out how much more you are willing to spend per month. Make sure to leave yourself some wiggle room in your budget because you never know when something might come up and you will need extra money.
Don’t forget to factor in car insurance as well. A newer model car might make your insurance rate go up. You can call your current insurance company to get a quote on what payments will look like for the car model you have your eye on.
The monthly cost of a new car – including the principal, interest and insurance payments – should not exceed 10 percent of your monthly income.
Step 2: Gather a Down Payment
By putting a down payment on your vehicle, you can help lower your monthly bill and pay overall less interest on your auto loan. You should try to pay at least 20 percent of your loan amount, but if you can afford to pay more, that’s even better.
Step 3: Consider Trading In Your Old Vehicle
If you decide to trade in your current car, you will likely get some money toward your new car as long as you are not upside down on your current loan. To get an estimate of how much your current car is worth, check out Kelley Blue Book or bring it in to Bryant Motors for a free trade-in appraisal and instant cash offer.
If you owe more on your current car than it’s worth, then it may not be a good time to get a new vehicle as you are going to be looking at a considerable increase in your loan.
Step 4: Decide on a Loan Term
Next, you’ll have to determine how long you want your loan term to be. A longer loan term leads to a lower monthly payment, but more interest accrued in the long run. A shorter loan term has a higher monthly payment, but less interest.
Choose the shortest loan term possible for your budget so that you pay less for your car in the long run. Most car dealerships offer loans anywhere between 2-6 years.
Step 5: Choose Some Possible Cars
After determining how much you can spend on a car each month, it’s time for the fun part: picking out a list cars that will meet your needs and that you like. At Bryant Motors, we have a wide selection of new and used vehicles to fit every family and lifestyle. We are ready to work with you and your budget to help you find a car that you will love at a price you’ll love.
The Three Rules of Smart Auto Financing
Finance experts often cite the 20/4/10 rule when calculating how much you should spend on a new car. This rule says you should pay a downpayment at least 20 percent, finance the car for no more than 4 years, and keep your monthly car payment (including principal, interest, insurance and other expenses) at or below 10 percent of your gross (i.e. before tax) monthly income.
However, everyone’s situation is different and this general rule doesn’t apply in all scenarios. When determining a car’s affordability, the best thing to do is speak with a financial expert.