So, it is time to buy a new car for yourself, and you are confused about what options you have for the vehicle. Well, consider this before even start to think about the alternatives you can buy as your daily ride; you need to calculate how much you can afford for a car. 

Yes, you have an idea about what you want in your car but have you even calculated if you can afford the car you want.

Well, Betters Insurance has your back. We have devised a list of considerations you need to ponder over before going new car hunting. And yes, we know there are plenty of car loan calculators available on google. But we will tell you how to use these calculators to your advantage and show yourself how much you can afford for a car.  

So, let us begin.

How much you can afford for a car | The Considerations

The Rule of Thumb

Check any car enthusiast websites like Jalopnik, Autocar, and they will advise you not to spend any more than 10% of the take-home money you earn on your monthly car loan payments. Let’s define it more clearly. 

The rule of thumb is: that if your income is about $4,000/- per month net after-tax, you must not be spending more the $400/- on your monthly car installments. 

It is suggested not to exceed 20% of your net monthly income on your car. This 20% includes the monthly installments for the car, the fuel and maintenance expenses.

Take Loans for Shorter Periods

Taking a loan for more than five years on a car will end up in you paying more money, and at an average depreciation rate of 20%, the vehicle at the end of five years will not be worth that money.  

The suggestion is to take a five-year plan on a brand new and a three-year plan on a relatively used vehicle. Honestly, used vehicles are more value for money.

Taking a long term will substantially reduce your monthly installments. But it results in you paying more than the actual worth of the car. 

Consider your future

You want to buy a Cadillac or an Audi, and you can even afford to loan it and pay its installments. But, you are to consider your plans for the future. 

You may have planned to mortgage a house or an apartment in the coming future. It will require you to submit an acceptable credit rating and approval from your financing company. 

At that moment, you do not want to be rejected and lose your selected home to another prospective buyer because you couldn’t control yourself from buying a premium, and now you cannot afford to pay for the house. 

Another case can be that in the future, you or your family needs another car. Or you need to take up a second mortgage to pay for your child’s college education. 

Be Realistic

In America, we tend to follow celebrities and want to ride in a Mercedes G-Wagon like the Kardashians. Well, the fact is we can’t afford to roll in a G-Wagon. That is why we are reading this page on how much you can afford for a car. Be realistic about your choices and avoid unnecessary spending. 

The Total Cost of the Car

The quote on the window sticker is not the total price of the car. When you buy a new vehicle, you have to pay taxes, insurance, and registration fees, and in some instances, transportation charges.  

Sales taxes and registration fees differ from state to state in the country. With an average of 10% of the vehicle’s price, these charges are a must, and you cannot avoid them.

Consider a simple scenario. The price of the top-of-the-line Toyota Corolla is about $28,000.

Add sales tax of about 10%, a registration fee of $900/- and some related documentation charges of about $400/-

You have to pay an approximate cost of $32,100/- which is quite different from the sticker price, and we have not yet accounted for the yearly auto insurance costs that are about $1,000-$2,000 per year depending on your credit, driving history and other factors.

You can reduce some of the costs if you trade-in your old car for the new one. Dealers usually trade your old vehicle for a newer one and take a significant amount off the new car price. This trade-in can enable you to buy a higher vehicle.

A Car that you can Afford

You have till now followed the rule of thumb and have calculated the monthly spending you can afford on your car (10%on the installment and 20% in total of the net income). You have kept in have decided for how long you will be paying for the car (max five years). You have considered all of your future needs, getting married, buying a house, college education, etc. You are realistic not choosing a land yacht Cadi against; a car sufficing your needs and has considered all the relevant costs.

Using the Car Affordability Calculator: 

Many online car affordability calculators supported by continuously updated data are available that can help you calculate the exact amount for how much you can afford for a car. The trick here is in using the calculator to your advantage. Buy putting in how much monthly or yearly installment you can afford for a vehicle and for what period you can pay those installments. 

Give the calculators a detailed view. If it allows you to enter; the state you live in and options for new or used cars and your credit rating, enter the details to account for the state compulsory charges in the costs. 

Also, include the cost of insurance and its premiums in your calculations to assure you have an accurate amount on how much you can afford for a car.

Contact Betters Insurance for any consultations regarding your auto financing and auto insurance needs at nathan@bettersinsurance.com