How Much Can You Really Afford to Spend on a New Car?
by Buddy Evans, Vice President of Big Bucks Auto™
Are you in the market for a new car? If so, it’s important to figure out what you can afford to spend — before going shopping. By doing some simple math and evaluating your current situation, you’ll be prepared to shop for a car you want – and can afford!
How Much Can You Spend on Monthly Car Payments
The first thing to figure out is how much you can afford to spend on monthly car payments. Most experts argue that you should not spend more than 20% of your monthly gross income on a car payment. In special situations this figure may vary, but as a rule for the average adult, sticking to 20% or less of monthly gross will likely be a wise move.
Short Term vs. Long Term Car Loan
Once you determine a safe figure for monthly car payments, you should consider the loan term. Remember that a longer car loan will mean much more interest paid over time, while a shorter car loan term will mean less interest but higher monthly payments.
Coming Up with a Down Payment
And what about your current car, assuming you have or had one?
Selling Your Current Car
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If you already sold your car you may have some available cash to contribute as a down payment. Any down payment you make is great as it will cut down on monthly car payments. If you still need to get rid of your current car, be sure to consider selling your car before simply trading it in to the dealer. You can usually expect much more money from selling your car than trading it in. If time is an issue, look for a reputable used car buyers like Big Bucks Auto™ in New York Tri-State Area.
If you already sold your car and have some leftover cash from the sale, consider keeping it for a down payment on your next new car. Any down payment you make will cut down monthly payments significantly.
Leased Car
If you’re currently leasing a car, you’ll need to either wait until your lease term expires – or get out of your lease early. To learn more about getting out of a lease, read “Getting out Of Your Used Car Lease”.
And if you have savings or other available cash, this may be used as a down payment as well if you choose to do so.
Car Insurance Costs
Insurance costs are another major consideration when figuring out how much you can spend on your new car. A sports car or a high theft car will likely have a far higher insurance premium than a run-of-the-mill sedan. To put this into perspective, remember that two new cars with sticker prices of ,000.00 each may have insurance premiums which vary by as much as 50% – or more! In other words, it’s very important to figure out – roughly – how much insurance is going to cost for all of the new cars your interested in.
Car Maintenance Costs
Then there are maintenance costs to consider. Some new cars will be far more expensive to repair than others. Foreign cars, for example, may be quite expensive to repair. However, many of these cars now come with warranties and free scheduled maintenance. New offers like this may actually make cars which used to be expensive to fix, far less expensive than other ‘cheap to fix’ cars! Therefore, the maintenance issue should be evaluated on a car-by-car and offer-by-offer basis, as manufacturers and their offers vary significantly.
After considering these simple factors, you’ll be prepared to go out and shop for a car that truly fits the bill, financially speaking.
Buddy Evans is the President of Big Bucks Auto, a used car buyer in the Tri State Area. Buddy Has written several articles related to his industry, including an article on “Getting out Of Your Used Car Lease”, most recently.
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