What’s Your Car Budget? Tips to Figure Out What You Can Spend

With 17.5 million Americans buying cars in 2016, it’s clear that the auto industry is alive and well. 

With 17.5 million Americans buying cars in 2016, it’s clear that the auto industry is alive and well. 

For those on the lookout for a new or used car, countless new options flood the market these days. Toyota and Honda have released 2018 and 2019 updates on the body designs of their best selling sedans, electric cars like Tesla are now mainstream, and hybrids continue to save car owners on gas.

If you’re ready to buy, you will need to know how much your car payment should be, and we’re here to help. We’ve got some tips to help you set a realistic car budget, no matter what kind of ride you want!

Calculate Your Car Budget

There are two main categories of car buyers on the market: Those who shop for the car they want, and those who shop for the car they need.

Calculating your car budget for the car you want is a little more time intensive than creating a realistic spending plan to land you with the car you need.

When you’re looking for something sensible, it’s much easier to create a car budget that will get you some wheels. Start the process with a realistic look at your finances.

Know how much you can use on a down payment. And if you have an older car you’re looking to trade in, look up the Blue Book value so you know what to expect at the dealership. Once you have this number in mind, calculate your monthly payment budget.

The 10% Rule

Our first tip is for penny pinchers who need a car. The truly frugal should start by calculating what 10 percent of your monthly income is. If you make $5,000 per month, for example, you can afford a $500 car payment per month. For those that make $2,000 per month, you’ll need to keep it super low with a $200 monthly car payment.

That’s the essence of the “10% Rule,” but — let’s be real. Most people aren’t able to stick by that. The “20% Rule” is more common, with people putting about 20 percent of their monthly income towards transportation costs or a car payment.

In an ideal world, you’d keep it to 10 percent. But figure out what’s most realistic to you and your family. Use our payment calculator to see what your monthly car payment might be.

Don’t Forget The Extras

When you’re coming up with your monthly car budget, don’t forget the extras. Car insurance, maintenance, gas, and other expenses will be standard issue for a car owner. Don’t skimp on insurance, but shop around until you get the best deal you can find for quality coverage.

The reality of owning a car isn’t just your car payment. Tires, windshield wipers, oil changes, brakes — there’s a lot of maintenance that doesn’t come standard. Some car buyers prefer purchasing new cars because of manufacturer warranties and service packages with purchase.

Used car owners will pay a much lower sum over time, but might have to deal with more unknowns. Gas mileage can also be an issue in older cars, as the newer the model, the more fuel efficient it will be.

Calculating your car budget should always include some emergency money or a little padding. 

Know Your Total

Many shoppers have a total car budget price in mind that they’re willing to pay for a new or used car. This will include a down payment, but will also include any extras or options they select on the car. It’s also good to have a ballpark number in mind when you go look at cars.

Search online or visit a local dealer to take a look without intent to purchase before you come up with this number. You’ll want it to be realistic for your budget, as well as your vehicle needs.

Debt Percentage as a Budgeting Tool

Another functional way to calculate what your monthly car payment should be is by using your debt percentage. You should never pay more than 30 to 36 percent of your monthly income in debts. Anything more can get tricky!

Calculate your monthly income, and add up your current debts. This includes school loans, credit cards, or any other loans you need to pay monthly. Try to keep your debt payments as a reasonable percentage of your income. 

It will give you peace of mind, and can help you figure out your new or used car budget!

Search Within Your Car Budget

It may seem like a no-brainer, but it’s important to search for cars within your car budget. There’s no harm in looking at a brand new Tesla or fully loaded Mercedes, but many people will have the budget for a nice used car or an economical new car.

And that’s what you need to be searching for. 

There’s no use trying to stretch your car budget beyond what you can afford. Be the person who buys the car you need, not the dream car you want. Consider your car like you would a device or appliance.

It gets you where you need to go.

Don’t Move!

The most crucial part of creating a car budget is sticking within your budgeted range. There’s no need to compromise for a more expensive car if you find something reasonable that’s well within your car budget. 

Another ride will come along. Don’t let anyone talk you into the financial danger zone. Whether you’re purchasing your car from a dealer or from an individual, make sure you stay true to yourself and your realistic monetary picture.

And don’t forget: There will be opportunities within the life of your car loan to refinance. This doesn’t mean settle for a high-interest rate, but it does mean that you can often find savings even after buying your car.

Find a Sensible Car

At Legend Auto Sales, we specialize in quality pre-owned vehicles and can help you apply for financing. We want to help you find a vehicle that can work within your car budget! 

We’re well-known throughout the state as one of the largest pre-owned vehicle dealers, with some of the friendliest and most helpful staff. Once you know your budget, check out our inventory of used cars and find the one that’s right for you!

Leave a Reply

Your email address will not be published. Required fields are marked *