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What is the most affordable car I can manage to afford? How to calculate car affordability Part Of Buying a Car In this series purchasing a Car

Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial choices by offering interactive tools and financial calculators that provide objective and original content, by enabling you to conduct your own research and evaluate information for no cost – so that you can make informed financial decisions. Bankrate has agreements with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this website are provided by companies that compensate us. This compensation may impact how and where products appear on the site, such as the order in which they appear in the listing categories, except where prohibited by law. Our mortgage or home equity products, as well as other home lending products. This compensation, however, does have no impact on the information we publish, or the reviews you see on this site. We do not include the vast array of companies or financial deals that may be open to you.


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4 minutes read. Published November 14, 2022

Writen by Rebecca Betterton Written by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers to navigate the details of borrowing money to purchase a car.

Edited by Helen Wilbers Edited by

Helen Wilbers has been editing for Bankrate since late 2022. He believes in the clarity of his reporting, which helps readers successfully land deals and make the best decisions for their financials. He is a specialist in small business and auto loans.

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The amount of car you can purchase is contingent upon factors like your income per month, your credit score and the features you’d like your car to include. Experts typically recommend spending no greater than 20 percent the take-home pay on a car. This should include the cost of fuel, insurance and more. Determining affordability requires balancing the needs of your vehicle with your budget. How do you determine the amount of car you can afford To set the budget for your car first, determine the amount you are able to afford each month. Be sure to factor in costs like maintenance, gas and insurance along with loan or lease payments. 1. Make a decision between leasing and purchasing Whether you’re makes a difference in what you are able to afford. Leasing is an option for drivers who want a lower monthly payment and the chance to enjoy the latest models of cars. The monthly payments are for the vehicle’s depreciation, not its total value. However, you still need to pay down your loan — and you’ll be paying to maintain a car you ultimately will not own. Purchases put you in the driver’s seat , with no limit on mileage and no additional costs for wear and wear and tear. It costs more to buy an automobile than lease it, and it is important to make sure that depreciation doesn’t affect you . However, you’ll own the vehicle and be able to sell it in the event of need. Use a to calculate your potential savings. What is affordable comes down to how you plan to utilize your vehicle and so you should research the benefits and drawbacks of each before you commit. 2. Take into consideration your salary is the most important factor to consider when the decision of which auto loan is the best option for you. that a new car payment be no more than 15 percent of your monthly pay. A used car’s payment is not more than 10 percent, however this number can vary according to the expert. If insurance, fuel and other regular monthly expenses are included, the cost shouldn’t exceed 20% of take-home pay. The amount you earn is important when you are trying to get approved for a loan. Lenders will take a look at your debt-to income ratio, or . This is a measure of your monthly expenses to your income per month. Most car dealers like to consider an DTI not exceeding 45 or 50 percent before approval of a loan, according to . Even if you have cash available to pay for your car outright but you need to consider your purchase in the full perspective of your salary and other expenses. Specifically, weigh buying in cash — and the possibility of eating up or even destroying your savingspaying down your debt over time. A car loan may not always be the best option, especially if you stand to spend more than the recommended percentage of your monthly earnings towards the loan. For some customers, financing a car can be considered an element of their overall financial picture. 3. Consider additional costs for your vehicle. The two most significant extra costs associated with car ownership are the cost of fuel and insurance. You can use to search for mileage estimates for the car that you prefer. Selecting a vehicle with high gas mileage can reduce your monthly expenses and can help you get the most from any employer mileage reimbursements. The cost of insurance varies according to the vehicle and the individual. Two cars that appear similar to you might be vastly different to the insurance company you have. A is a great place to start understanding your potential insurance costs and what factors the insurance company will take into consideration when developing a price quote. Typically, companies will evaluate the following: Your driving history. How often you use your vehicle. Your location. Your age. Your gender. Your credit. The type and the amount of coverage you chose. The discounts you qualify for. Depending on the state you live in, there may be limitations on the type of discounts you can get when the cost of your auto insurance. Do you have the money to buy the car you’d like to purchase? Once you’ve got an idea about your spending budget you’ll be able to compare whether the car you’ve been eyeing is in your reach and if you’ll require financing. Following these steps can help to determine the cost of a particular vehicle or loan. 1. Find out how much you’ll have to pay for the payments on your vehicle loan are more than just the cost of the vehicle. Be mindful of the ” ” (OTD) amount that will take into account not just the price of your car, but also taxes, fees and any other add-ons you buy. Through research, you will learn what to expect in state sales taxes and registration fees for vehicles and titles. While some are required by law, the company policy, others are optional or removed. Understanding what is and isn’t available for discussion could make a difference in time and stress when negotiating. With an affordable OTD cost in mind, you can aim at a specific sticker price when shopping for a vehicle. Understand that the OTD cost could add up to 10-15% to your car’s price, depending on your locale. 2. Get an initial figure by using the car loan calculator The interest rate that you are charged on a loan is a major factor in calculating your monthly payment amount. A higher credit score will score you lower interest rates, which will ultimately lower your monthly payment and the total loan cost. You can use a to determine how different rates of interest will impact your monthly payment. Here is how: Pull an image from your credit score, and find out your . Be prequalified with a handful of lenders to find out the typical interest rate you may be offered. Input in your rate of interest, your desired duration of repayment and vehicle cost into the calculation. This is the second aspect you should consider. A shorter loan term means bigger payment, but less interest in total. So, while a long loan time may sound appealing, it may be better to select a less expensive vehicle to make payments more reasonable. Bankrate’s insights

Utilize the car loan calculator to determine how much your monthly payments will be before you complete a full auto loan application.

3. Utilize a cost-to-own calculator. Beyond the monthly payment You should think about whether you are able to afford maintaining the car. Get a few and make use of a cost-to-own calculator to see estimates of what you could have to pay. Edmunds along with Kelley Blue Book have cost-to-own tools that take into account expected fuel costs and maintenance repairs, state charges and average depreciation. The bottom line Being flexible with your budget can allow you to avoid spending money once you have brought your new vehicle home. Before settling on a car think about all the possible costs, not just the monthly cost. You should look for a car that is priced at least 20% of your home pay. The objective is to find a car that will meet your expectations and gives you enough money to cover unexpected costs or income fluctuations.


Written by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase the car they want.

Edited by Helen Wilbers Edited by

Helen Wilbers has been editing for Bankrate since the end of 2022. He believes in transparent reporting that allows readers to confidently get deals and make most appropriate choices regarding their finances. He is a specialist in small and auto loans.

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