How much can you afford to spend on a car?
When buying a new car, the first thing many consider is how much they can afford to spend. These tips can help you determine how much you can afford to spend on a new car.
Do you have a downpayment? Do you have money set aside for a downpayment on the vehicle? Or do you have a trade-in? This will help lower your monthly payments. ConsumerReports.com recommends that ideally, buyers should put 20 percent down on their new car to help minimize their overall cost of the loan.
Tally your monthly expenses: Before looking for a new car, calculate your current monthly expenses to see how much you can afford to spend on a car payment each month.
Calculate your debt: According to Consumer Reports, experts recommend that your total debt payment be less than 36 percent of your gross income. To calculate this, first find out what 36 percent of your gross monthly income is. Next, calculate your current debt payments, including your mortgage and credit card bills. Then, subtract that number from 36 percent of your gross income. This will tell you how much you have to spend on a car payment each month.
Be aware of additional costs: When calculating how much you have to spend, don’t forget to add in fees for sales tax, registration and insurance.