What Percent of Salary Should Be Spent on a Car Payment?

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The total amount of money you make should always play a factor in deciding how much to spend on new expenses like cars. Find out what percent of salary should be spent on a car with help from a personal finance professional in this free video clip.

Part of the Video Series: Money Management
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Video Transcript

Hi, my name is Andrew Schrage, co-owner of The moneycrashers.com, personal finance website, and today we're going to discuss how much of your monthly salary should be allocated towards your car payment. It's important to figure this out because you do not want to be left with a car payment that you can't afford which can quickly damage your credit score. Most experts suggest spending 15 to 20 percent of your monthly salary on your car payment but to take it a step further I suggest working your way backwards to figuring up how much you can afford. In other words, generally you should be spending one third of your monthly salary on your total debt. So you want to add up all of your expenses whether it's transportation, food, and luxury expenses like restaurants and add that up to a total amount of non-car payment expenses. From there take your monthly salary, divide it by three and subtract the amount of non-car payment expenses. That's the number that you can spend at max on your car payment and by using this strategy you can ensure that you're not going to be committing to a car payment that you can't afford. Once again this is Andrew Schrage with Moneycrashers.com discussing how much of your monthly salary you should allocate towards your car payment.

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