Car loan calculator: how much car can I afford? | MoneyUnder30

The realization that it ’ second time to buy a car credibly comes with an equal mix of agitation and trepidation .
On the one hand, you have a courteous, modern cable car to look forward to – heat seats, Apple Carplay, and more .
But on the other handwriting, you ’ re doing mental stretches getting fix for all the hoops you ’ ll have to jump through before getting the keys :

By the end of this part, you ’ ll have the answers to all of these questions and more !

Here’s how much car you can afford

Follow the 35% rule

Whether you ’ re paying cash, lease, or financing a car, your upper spending limit really shouldn’t be a penny more than 35% of your gross annual income.
That means if you make $ 36,000 a year, the car price shouldn ’ t exceed $ 12,600. Make $ 60,000, and the cable car price should fall below $ 21,000 .
And so on .
immediately, 35 % is an upper spend limit. not everyone should spend over a third of their income on a car. Folks who just want something to ferry them to work will be absolutely happy spend way less, while anyone who grew up watching Top Gear will likely want to spend closer to the limit .
Which tier do you fall into ?

Tier Description Spending limit
The Frugal Commuter “I just need something reliable to get me to work. Nothing fancy.” 15%
The Compromiser “I’d like some creature comforts – maybe a good sound system and heated seats.” 25%
The Enthusiast “I love cars and driving, and want my whip to be as fun/luxurious as possible within budget.” 35%

You can tinker with the Money Under 30 Car Affordability Calculator to get your accurate numbers :

Payment options

How to use the Money Under 30 Car Affordability Calculator

Let ’ s pretend that you make $ 40K a year. Your budget is 35 % or $ 14,000, and you plan to make a 20 % down payment of $ 2,800. You don ’ t have a trade-in, and you choose a 48-month loanword at 4 % .
punch in those numbers and scroll to the penetrate, where you ’ ll see an all-important number : Maximum recommended monthly payment. Since we stayed within budget and put 20 % down, we ’ ra ~ $ 80 below our utmost recommended payment — a dear place to be .
How Much Car Can I Afford? - Your results

Should you lease or buy a car? 

now, let ’ s talk about leasing versus buy .
We know why a lease can be tempting — you get a brand newly cable car for a lower monthly payment than a car lend. What ’ s not to like ?
well, at Money Under 30, we ’ rhenium not big fans of leasing a car. Leases are riddled with concealed costs that drive up the monthly requital, such as higher policy rates, mileage charges, and the results of the dreaded credit poster test, where the principal will charge you for every dent and scratch bigger than a credit wag .
As a resultant role, Allyson Baumeister, a member of the Texas Society of Certified Public Accountants, says :

“ Buying a car is about always better than leasing. ”

Read more: Why you should ( about ) never lease a cable car

The two times leasing might make sense

All that being said, there are two cases in which leasing might make sense .

  • You only need a car for three years. To be clear, this method international relations and security network ’ t necessarily cheap than buying used — but it is a moment more convenient. If you don ’ metric ton want the hassle of having to sell a use car, lease might be the way to go.
  • You gotta have that new car smell. If you can ’ thymine bear the idea of driving a exploited car, but besides can ’ thyroxine afford to finance a sword new one, leasing might be an option. But we still recommend that you convince yourself that a practice car is the better motivate .

Should you pay cash or finance a car?

If you can afford to pay cash, should you ?

Here’s why financing is almost always better than paying cash

On newspaper, paying cash makes much more smell. You don ’ t have to worry about a monthly payment, you don ’ thymine give a dime bag of concern, it ’ randomness one-and-done .
however, there’s an opportunity cost to paying cash .
If you write Carmax a check for $ 15,000, that ’ s immediately $ 15,000 that you can’t invest and reproduce .
To illustrate, let ’ s say you choose to finance alternatively of paying cash. You put 20 % or $ 3,000 gloomy, and set up autopay for your $ 300 monthly payment .
That leaves you with $ 12,000 today to play with .

  • You could put it in an S & P 500 index fund where it could become $ 30,000 in five years .
  • You could put it in your retirement report, where it could become $ 113,000 in 30 years .

As a general rule of flick, it’s usually worth financing at a 2% interest rate or lower and stashing the cash in other places where it can grow a lot faster. As a cherry on top, financing with a low pastime rate is better for your citation score .
For ideas on where to invest your extra car cash, check out 7 easy ways to start investing with little money .

3 rules for financing a car

If you ’ ve established that financing is the right affect for you, what are your next steps ? What are some good rules of finger to follow to ensure you get the best deal from your car lend ?

Put at least 20% down

The samara objective of any loanword is this : D on’t go upside down.

You’re “upside down” on a loan when you owe your lender more than the asset is worth — meaning that even if you sell it, you still owe money on something you don ’ triiodothyronine evening have anymore !
Yeah, top down is not a fun place to be .
That ’ s why you ’ ll frequently see the number 20 % thrown around when it comes to a car loanword, a mortgage, etc. Large down payments not alone help to reduce your monthly payments, and serve as a good litmus examination as to whether you can afford the cable car – they besides erect a dam to prevent you from going submerged .

Pick a loan term shorter than 48 months

It might be tempting to push out your car loan term on the Car Affordability Calculator to lower your monthly payments. After all, in our earlier exercise, if we extend the term from 48 to 72 months, the monthly payment drops to fair $ 175.23 .
How Much Car Can I Afford? - Length of loan
But pushing out your loan term means you pay a lot more in total .
To illustrate :

  • 48 months X $ 252.89 monthly payment = $ 12,138.72 .
  • 72 months X $ 175.23 monthly payment = $ 12,616.56 .

That ’ s about $ 500 more just in interest. Plus, that ’ s two more years you might have to pay a lender ’ s higher indemnity requirements. last, you don ’ thyroxine want to silent be paying off your car as its value plummets after four years, since the gamble of going subaqueous goes higher .

Your total car monthly payment (interest, principal, sales tax, and insurance) should not exceed 10% of your gross monthly income

This is classify of a more granular version of the 35 % dominion .
The 35 % ( or less ) predominate gives you a general budget to plug into the search filters on Carmax, Edmunds, etc .
But when it comes down to brass tacks, you ’ ll want to zero in on the monthly payment. Take your annual income, divide it by 120, and that ’ s the most you ’ ll want to pay for a car each calendar month including insurance .
Read more: Tips for saving on your cable car lend

Here’s why your budget is lower than you were hoping

If your reaction to the Car Affordability Calculator was :
Bruh – that’s it? That’s all I can spend on a car?
well, you wouldn ’ t be the first to feel that way .
I , excessively, felt that way binding at my first job. Everyone I worked with was driving bright newfangled Mercs and BMWs to work, while my budget calculations said I could only afford a used Mazda at best .
I was making the same money as them, so… what gives ?
Why can ’ thymine I afford a new Hemi-powered Charger or Lexus crossing over like apparently everyone else on the road ?
The world is that most Americans are driving cars that they can ’ t truly afford. For the inaugural quarter of 2022, Edmunds reported that the average new car loan term was a horrifying 70 months, with the average monthly payment reaching $648 for new cars.
This tells us that quite than considering a more low-cost car, Americans are pushing out their cable car lend terms even farther, staying in debt farseeing, and just paying way, way besides much overall .
Remember, you ’ ra cling to the 35 % rule for respective reasons :

  1. You can still get top-rated crossovers, sports cars, etc. for under $ 15,000 .
  2. You won ’ deoxythymidine monophosphate run the gamble of going submerged .
  3. You ’ ll be able to invest all the money you save – enabling you to achieve fiscal independence much fast ( and even buy a much decent car ! ) .

5 tips for getting the best deal possible on a car

I ’ ve been buying cars for clients ( and myself ) for years. On average, I negotiate and save $ 3,100 on each cable car I buy. Dealerships have outright expressed their contempt for me, and their cruddy text and emails help oneself me to sleep at night like warm tea .
You can read all of my secrets, vitamin a well as the best A-to-Z process for buying your foremost car, in my car buy guide .
In the interim, here are some of my favorite and most effective tips I ’ ve put together over the years .

Shop around for car insurance

My beginning two car indemnity quotes for my 2001 Mazda Miata were $ 200 and $ 1,000 for six months. same car, lapp peanut driving it — 400 % monetary value difference .
Every indemnity provider sees each driver and car match differently, so it absolutely pays to shop around for at least five quotes. Check out our tilt of the best car indemnity companies for young adults to compare multiple insurers then that you don ’ t end up overpaying .

Buy used – seriously 

A use car that ’ s passed a pre-purchase inspection is closely equally full as a brand fresh car .
In some cases, it ’ randomness even better. generally speaking, a Toyota with 50,000 miles on it will outlast a VW, Fiat, or an Alfa Romeo with 0 miles on it. It all comes down to initial build quality, which some manufacturers emphasize more than others .
Used cars are besides importantly cheaper ( when there ’ s not a chip dearth ). As a general rule of thumb, cars lose at least 15 % of their measure each year — so if you ’ re considering a Mazda3, look back good a few model years for a exorbitant discount .

Don’t pay a penny for dealer extras

Before you sign, dealerships will try to add “ recommended extras ” onto the bill price. These typically include a $ 1,000 ceramic coat, $ 1,000 for a GPS anti-theft device, and $ 100 for nitrogen in the tires .
You can apply a ceramic coating yourself for $ 50, put an Apple AirTag under the seat for $ 29, and get free nitrogen at Costco ( oxygen is besides fine ) .
Oh, and ask to waive the “ documentation fee. ” It ’ s not a fudge fee, but dealers charge excessively much and many will reduce or remove it upon request .

In fact, don’t go to a dealership at all 

For decades, car dealerships have employed scruffy manipulation tactics like including concealed costs, undervaluing your trade-in, and telling instantaneously lies just to get you in the door .
And now, with lower inventory and increasing pressure from Carmax and Carvana, they ’ rhenium getting bold and more desperate .
You can still negotiate a effective deal with dealerships, but you ’ ll want to enter the leo ’ s hideout ready to fight. For everyone else, Carmax is a much better choice .
Read more: Ex-car salesman tells all : how to beat the car dealerships at their own game

Reliability is the best luxury

ultimately, I ’ d recommend you to make dependability one of your top considerations when buying a car. In addition to browsing the Consumer Reports dependability surveys, run any cable car that you ’ re considering through The Edmunds Inc. true cost to Own® tool .
Tinkering around with TCO® will reveal that while a visualize 4-Series Bimmer may cost less than a Mazda3 to buy, it costs over $ 20,000 more to own and maintain over five years .
How Much Car Can I Afford? - BMW cost to own
How Much Car Can I Afford? - Mazda cost to own


The golden rule to car buy is to never spend more than 35 % of your gross annual income on a cable car .
immediately, your chemical reaction may be eh, I was hoping I could spend more… but remember : There are a bunch of use cars you can still get within your budget, and all the money you don’t spend can be invested and multiplied .
If you ’ rhenium smart and economical with your money, the Mazda you buy today can become the new Mercedes you drive tomorrow !

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