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Car Loan Calculator: How Much Car Can I Afford?
Buying a car can be as stressful as it is exciting, which is why you need to know how much car you can afford before you start shopping. Take the mystery and frustration out of the process by following these simple steps using our car loan calculator.
You’ve already started daydreaming about your new car. You keep replaying the mental image of your best friend’s look of total envy when you roll on over to show off your new wheels.
There are few purchases more exciting than buying a new car. Before you make that daydream a reality, it’s important to do your research on the total costs of purchasing a car, truck or SUV. We’ve compiled some key questions to ask and things to consider before you start shopping.
How much can you pay per month without breaking the bank?
If you plan to finance your new car, begin with the basics and look at your budget to determine what monthly car payment you can afford.
1. Start with your total monthly income.
Add up your total net wages (after tax). Be careful when including any monthly bonuses or income that fluctuates or is not guaranteed — it’s safer to stick to income you can count on.
2. Deduct your monthly expenses.
These expenses include anything you pay out each month: your rent or mortgage, utilities, cell phone, streaming services, auto insurance, groceries, etc. Make sure you look at all monthly spending to get an accurate idea of what you can afford and where you may need to cut back in order to make a big purchase.
3. Consider the costs of car ownership.
Car expenses go beyond what you pay to get your ride off the lot. You need to consider auto insurance and registration fees. These costs can be higher depending on the year, make and model of the car. Make sure to include some wiggle room in your budget to account for the interest that will be added to your monthly car payment. Take a look at current auto loan interest rates to get an idea of how they will impact your monthly payment.
Check out this video explanation of interest rates and how a lower or higher rate can impact the total cost of a car.
Don’t forget about routine maintenance like oil changes and tune-ups. While most new and some used cars come with warranties, there are several higher-ticket maintenance items that are not covered, like replacing tires or brakes. While many of these are not monthly expenses, they can pop up when you least expect them. If possible, contribute to your savings account each month so when these repairs come up, you’re able to comfortably cover them.
4. Learn how much car you can afford.
After factoring in your monthly income minus your living expenses, you should have an idea of what monthly payment works for you. Plug an estimated loan amount, loan term and interest rate into this handy calculator to see what your monthly payment would be.
What down payment amount works for you?
Now that you know what monthly payment is affordable, it’s time to factor in the costs you will encounter during the purchase of your vehicle.
The rule of thumb has commonly been that a buyer should put down 20% but due to the rising costs of car ownership, sometimes that’s not feasible. An Edmunds1 analysis of new and used car purchases in 2019 showed that the average car loan down payment was 11.7%. Just remember, a solid down payment will help minimize your monthly payment, get you better interest rates and balance the depreciation of the car.
If you have a car to trade in, then it can potentially offset the amount of your down payment. The amount you’ll receive for your trade depends on factors such as age and condition of the vehicle, plus how much equity you have in the car (the value of the car minus what you still owe on your auto loan).
Next, consider the length of your loan.
The options for car loans are typically structured in 12-month increments lasting somewhere between two and eight years. While longer loan terms (72 months or more) may seem tempting due to the lower monthly payment, in the long run, you will end up paying more interest. Also, a long-term loan may not allow you to build up meaningful equity in your car, which means you may owe more on your car than the value it holds.
Enjoy the journey!
You’re doing your research. Yay, you! By taking the steps above and using our helpful car loan calculator, there should be no more wondering, “how much car can I afford?” You are being proactive and minimizing the mystery and frustration of the car buying process, which means you can focus more on the fun part — driving home in your new ride!
2First payment may be deferred for up to 90 days from loan date. Your loan will accrue interest during that time. Some restrictions apply. Ask a representative for details.