How Much Car Can I Afford?

Lenders use several pieces of information to decide how much money they will offer to lend. This is true for cars or trucks as well as for houses. As with homes, auto financing firms don’t know how much you can actually afford. Those numbers can be very different. Consider your budget, your credit situation, and the true cost of owning a car. 

Consider Your Budget

Your overall budget, not your car budget, is what counts here. Calculate how much you spend on rent, utilities, groceries, savings, entertainment, and so on. For example, you may find that your living expenses eat up $2400 a month. You make $3000 a month, net, This leaves you with $600 to spend. Whatever you have left is what you can realistically afford on your next vehicle.  

Consider the Full Cost of Ownership

Continuing with this example, it looks like you can afford $600 a month on transportation. This is not quite true. Find out how much insurance will cost. Add estimated costs of gas, parking, and maintenance. You may discover that your $600 a month budget only allows you to spend $300 a month on car payments. Another popular source recommends spending no more than 10% of your take-home pay on your vehicle payments, or 15% on all of your vehicle-related expenses.

You also have to consider the cost of financing a car. Don’t hesitate to apply for auto financing metro Detroit MI ahead of time, so you know you can get financing. You may be able to cut your total cost by making a bigger down payment. For example, you could borrow $15,000 instead of $18,000. Borrowing $15,000 at 8% will cost less in the end than borrowing $18,000. 

Auto financing is easy to understand if you remember to think beyond the cost of a car payment. Think about your current expenses. Use that amount to help you decide how much car you can afford. 

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