Determining how much car payment you can afford depends on your take-home pay and other expenses. Financial experts recommend spending no more than 10-15% of your after-tax take-home pay on your car payments. Here are some steps to help you calculate how much car payment you can afford:
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Calculate the car payment you can afford based on your take-home pay. NerdWallet recommends spending no more than 10% of your take-home pay on your monthly auto loan payment. For example, if your after-tax pay each month is $3,000, you could afford a $300 car payment.
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Determine the total loan amount you can afford. The total loan amount you can afford isn’t necessarily the price of the car you can afford. If you’re making a down payment or trading in your old car, you’ll be able to buy a higher-priced car, or borrow less money.
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Set a target purchase price. Once you estimate the car loan amount you can afford, you can begin to get a realistic idea of the purchase price you should consider.
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Calculate your total car expenses. Financial experts recommend that your car payments should be no more than 10-15% of your after-tax take-home pay, and your total car expenses should be no more than 20% of your after-tax take-home pay. This includes things like gas, insurance, repairs, and maintenance.
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Decide on a loan term. Its best to spend around 10-15% of your take-home pay on a car payment. When calculating how much you can spend on a car, make sure youre always looking at your post-tax or net income.
Remember that these are just guidelines, and you should consider your own financial situation and priorities when determining how much car payment you can afford.
