Purchasing a new vehicle should be an exciting experience. However, there are many people out there who spend their time stressing and wondering how much car can they afford. With a little number crunching and some homework, you can easily figure out how much you will need to get behind the car of your dreams. The first step is to figure out if you can even afford a car.
Is it Financially Feasible to Purchase a Car?
The easiest way to figure out if you can afford a car is to determine your monthly income and then deduct expenses (rent, healthcare, bills, and food). If the amount of money that is left in your account sits within 20 percent of your overall monthly income, then you can reasonably afford a new vehicle. For example, if you happen to earn around $2,500 per month, then the amount that you should spend on all auto-related expenses should be around $500. If that sounds manageable, then you are one step closer to owning a new car.
Consider Your Annual Income
When determining your vehicle budget in relation to yearly expenses, you want to focus on several rules: the 10 percent rule, the 30 percent rule, and the 50 percent rule.
Say you earn $50,000 per year, if you follow the 10 percent rule, you can spend only $5,000 on a vehicle. If you follow the 30 percent rule, then you can spend about $15,000. The 50 percent rule stipulates that you can spend about $25,000, but you also have to factor in gas, maintenance, registration, among others.
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Consider Your Monthly Payment
Now that you have the amount that you can spend on a vehicle, it’s time to determine how much your monthly payment will be. If you follow the 30 percent rule and purchase a $15,000 car that is financed over 60 months at 5 percent APR, you will spend around $283 per month on payments. Of course, these figures can be altered with trade-ins, higher down payments, lower annual percentage rates, and other negotiated fees.
Be sure to shop around for financing. Also, be aware that your credit score will determine your APR rate.
Everyone’s financial situation is different, so head over to Della Auto Group to work with our excellent team and secure a vehicle your wallet is comfortable with!
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