If this is your first time buying a car, you’re likely asking yourself, “How much car can I afford?” By taking into account your living expenses and other financial factors, you’ll do yourself a tremendous service when shopping for a car that’s within your budget.
How Much Should You Spend On A Car?
Like all financial questions, the answer is a little tricky. Conventional wisdom has it that all motor vehicle expenses should not exceed 20% of your monthly income. Depending on your level of income, you probably don’t need 20% of your income to pay for and maintain a car. And if you don’t make a lot of money, you might need to stretch your budget just to get a new set of wheels.
The math is isn’t complicated. Just multiply 20% of your monthly income by 12; then, multiply that number by 5. The car you buy should cost less than your final calculation. In fact, it should cost less. That final price will include various taxes, fees, and maintenance costs.
Additional Fees And Taxes
When you go to a dealership, every car you see will have an information sheet with various prices on it. These prices include the manufacturer’s suggested retail price (MSRP), base price and invoice price. This sheet will also include city and highway gas mileage, as well as other information pertinent to the vehicle’s value and utility.
But this information sheet may not tell you everything. For example, there are many fees and taxes that are included on top of the price you and the dealer agree upon.
Some of the fees you should be aware of:
From sales tax to registration and documentation fees, these additional costs will increase the price a car by roughly 10%. Even aesthetics like hard-to-find paint colors and other upgrades, such as leather seats and state-of-the-art stereo systems, will impact the final price.
Upsells and warranties
If you want to buy an extended warranty, prepare to pay extra. Warranties are usually pretty expensive and are going to cost you a fair amount.
There are many flashy extras a dealer might add to a car to increases the overall price. Be sure you know what features are standard and which ones will cost you extra. If you don’t want to pay more for extra features, such as aftermarket wheels, ask for the car’s standard equipment be replaced.
Not all costs are paid at the dealership. You’ll pay for many of them over the life of the vehicle. Here are a couple of expenses you should take into consideration when calculating your monthly vehicle expenses.
You legally need driver’s insurance to operate a vehicle on the road. Different car models will cause your insurance to go up or down. For example, a new sports car is significantly more expensive to insure than a used minivan. Get an idea of how much your insurance company will charge to insure different car models, and ask yourself if those costs fit your budget.
Your car payment is the final cost of the car, minus the down payment, plus interest. Your credit score might affect your monthly payment some. The weaker your credit is, the higher the interest rate will be. You want your monthly payment to be less than 20% of your monthly income so you can still afford maintenance, car insurance, and any other unforeseen costs in the future.
Your car is going to need its oil changed, fluids changed, tires rotated, brakes replaced and a variety of repairs over many years. This doesn’t include the price of gasoline to keep the car going. It can be hard to estimate, but do some research whenever possible to get an idea how much it costs to maintain any particular model you’re thinking of buying.
There’s a lot to keep in mind when buying a car. But by factoring in all the variables, you can focus in on the one you can truly afford. Then, use the AutoGravity app to help you get the most out of your car-buying experience.