What Fraction of Your Salary Should a Car Cost?
Even the best of recommendations won't suit everyone's budget for a car purchase. Depending on your personal debt load, you might easily afford a new car purchase with a higher car payment. Ultimately, you'll have to decide how much you can afford to spend on a car purchase without neglecting your additional debt and other expenses, including money for entertainment and hobbies.
Other People Are Reading
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Budgeting
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Edmunds and Bankrate.com both recommend keeping your car expenses below 20 percent of your take-home pay, known as your net income. Add up the cost of loans, credit cards, food, insurance payments, rent or mortgage payments to determine your debt responsibility. Subtract your debts from your monthly income to determine your left over income. Multiply your result by 20 percent; the result is the suggest amount to spend on your car costs, which include car payment, maintenance, gasoline and insurance.
Other Costs
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Determine your weekly mileage and how much you'll pay for gas. A long commute can demand over $100 per week for gas, so research gas mileage if you put a lot of miles on your vehicle. Check with your insurance company to find out the cost of your insurance payment. If you finance or lease the vehicle, you'll need full coverage insurance. Contact a repair shop to determine the costs of maintenance, which is usually suggested every 3,000 miles or three months, whichever comes first. Add these costs to your monthly payment to determine the true cost to own and maintain a vehicle.
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Considerations
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Other factors might affect your monthly payment, so plan ahead if you plan to finance. If you have poor credit, your car payment increases because of your interest rate. Or, your lender might require a down payment, so you'll have to pay money out-of-pocket to finance a vehicle. Apply for an auto loan pre-approval before you shop to secure the terms of your loan. You can use your interest rate and term to calculate your monthly payment. Adjust your purchase price accordingly to remain within your budget.
Savings
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If you plan to pay cash for your car, don't deplete your savings. Steve Bucci of Bankrate.com warns that people should have three to six months in savings in case of an emergency. To determine the amount you'll need to save, divide your yearly salary by 12 (the number of months in the year) and divide the result by three or six, which is the amount of money you should have set aside. If the purchase would deplete your savings, financing the purchase might be a better option.
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