How Much Can I Spend on a Car Payment?

Buying a car is no small purchase and is up there with purchasing a home in terms of cost significance. Of course, money is not everything one takes into consideration before buying a car. Features, model, mileage, and brand are some of the many factors that hold sway over us during our selection process. Yet at the end of the day, it is the price tag that holds the last say. Kelley Blue Book was able to estimate that the average price of a vehicle in the United States was $37,285; quite a substantial figure. When deciding how much to spend on a car payment there are various methodologies you can deploy, here are two prominent approaches . 

Calculation Based on Your Salary

Many experts believe that you should only spend 15% of your monthly net income on a car purchase. Note that your net income is the money you receive after federal, state, and local income taxes have been taken from your paycheck. The reason why 15% is the prescribed number is that this amount will make budgeting easier. Only paying 15% on car loan payments gives you enough funds to cover other normal and unforeseen expenses.

Calculation Based on Overall Expenses

Basing how much you can spend on a car off of overall expenses is a good methodology for people who need to have a visualized monthly budget. To perform this calculation, you will need to factor in your net income, current nonauto expenses, projected nonauto expenses, and projected auto expenses.

Net Income

Net income has already been defined, but here is an examination of the three others.

Current Nonauto Expenses

Current nonauto expenses are things like your rent, credit card debt, groceries, utilities, and anything else that is unrelated to your car.

Projected Nonauto Expenses

Projected nonauto expenses are projections based off of big expenses coming up in your future. For example, if you are planning on buying a new home, getting married, or having a child, you will need to factor in these monthly expenses into your overall calculation.

Projected Auto Expenses

Projected auto expenses are the payments you will need to budget for each month if you take out a car loan. Additionally, there are many more projected auto expenses you will need to take into consideration. Here are some examples: fuel costs, maintenance, repairs, registration fees, and discretionary funds.

Another vital expense you must take into account when buying a car is car insurance. For this aspect of the purchasing process you can refer to a Hobbs, New Mexico insurance agent to provide you with valuable insights.

About Daniels Insurance, Inc.

At Daniels Insurance, Inc., we have a unique understanding of the risks that businesses like yours face on a regular basis. With the backing of our comprehensive coverages and our dedication to customer service and quick claims resolution, your business will be fully protected. For more information, contact us today at (855) 565-7616.