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What Can You Afford to Spend on a Car?

How Much to Spend on a Car

For everyday commuting, a car helps to get from point A to point B quicker and enables you to keep a flexible schedule. However, when you eventually decide to become a car owner, it is essential to note that the purchase price should not exceed 35% of your annual income if you pay in cash.  If you are financing it, the amount you spend on a car payment, gas, insurance, and maintenance should not exceed 10% of your monthly gross income.

How to Use the Car Affordability Calculator

Spending less than 35% of your annual income is THE basic rule you need to follow while purchasing a car. It gives flexibility to your budget to cover maintenance, insurance, and other expenses. 

A bi-weekly payment car loan calculator is a tool that shows you possible savings using accelerated payment on your car loan. An auto finance calculator is a valuable tool when it comes to calculating your monthly payments. By providing you with the loan amount, interest rate, and term of the loan, you can quickly determine how much you can afford for a new vehicle.

With a car affordability calculator, monthly payments come first. Start with the total loan amount you require and other inputs to know your monthly expenses. It then shows you the loan amount you can manage and how the loan term and Annual Percentage Rate (APR) change your total loan amount.

To use the calculator, or others like it;

      1. Insert the monthly payment you can afford and the loan length you want.
      2. Choose either new or used and your credit tier. 

A calculator will estimate APR depending on new or used car loans in the credit tier using Experian Information Solutions data.

How to Determine What You Can Afford

The affordability of a car depends on many factors; there is no fixed formula on how much you can afford. Ideally, new car payments should be 15% or less of your monthly income. Your starting point should be to check lenders from different firms and compare their offers. Calculating how many cars you can afford before visiting the car dealer saves you money and time.

Below are some of the vital steps to follow.

1. Calculate the Affordable Car Payment Period

It is essential to be realistic about the period you want to be making the monthly payment. We recommend a maximum of 36 months for used cars and 60 months for new vehicles. Long-term installment loans with no credit checks and with direct lenders reduce your monthly income, but you will pay more interest over time. It also results in owing more than the car is worth.

2. Calculating Your Affordable Loan Amount

After calculating your affordable monthly car payment period, you will start getting a sense of how much to borrow.

However, it depends on various factors, including:

3. Setting a Target Purchase Price

The amount of loan you can afford is not necessarily the price of the car you can afford. When making a down payment, or trading your old car, you can manage to purchase a higher-priced car or even borrow less money.

After estimating your affordable car loan amount, you will have an idea of your vehicle purchase price. Consider sales tax and fees to the advertised cost of the car to determine the total car price.

The easiest way of estimating extra expenses is by adding 10% to the advertised car price. The car payment calculator from BECU is one example of a calculator which can help you predict your payments. Just lock in a fee from your computer, as long as you are a member. To have a more precise estimate, below is a breakdown to help estimate extra costs.

Sales Tax: Ranges between 5% to 10%, including local, county, and state taxes

Registration Fee:  Fees are available on the motor vehicle website.

Documentation fee: Ranges from $80 to $ 400, depending on the state.

Finding a Car You Can Afford

When you are preparing to get your next ride, the DCU auto loan rates for used cars have low rates and flexible terms you can rely on to estimate the actual payment schedule of the car you intend to buy.

Getting a deal with lower monthly repayment and cheaper running cost is a good starting point. Negotiate with the dealer on the best price, but ensure that you secure financing before visiting the dealer.

Consider the factors below to assist you in finding the most affordable car

Existing Debt

Other debts like student loans, medical bills, and credit balances consume a more significant part of your income. It will reduce your car-buying budget.

Car Insurance Premiums

Drivers carry liability insurance in practically every state. However, some drivers opt for comprehensive coverage for more protection. Premiums are dependent on the car type you own, your age, driving history, location, coverage options, and the number of miles you expect to move. New and more expensive cars are more costly to insure.

Maintenance Fees

Even if new cars do not require repairs, every vehicle needs maintenance, which generally costs about 9 cents per mile. For example, if you drive 12,000 miles, then it is likely that you will incur a $ 1,080 maintenance fee annually.


When commuting to the workplace, gas is an expense that is added to your budget. On average, a person spends $ 174.54 on gas every month. However, if you have a lengthy commute or you want to enjoy a road trip, you will incur more costs. So, purchase a car with a smaller motor that burns less fuel to save on your budget.


The interest rate set depends on the credit score to determine the repayment amount on your loan approval.

A loan calculator is vital to determine the potential interest rate and monthly car loan repayment. Once you have considered the above-highlighted points, it becomes easy to purchase a new ride that fits your commuting needs and budget.

Featured Image: Megapixl

About the author: Shaan is a content writer who enjoys creative writing and her career in the marketing field. Shaan also has an educational background in Marketing Management.

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