Buying a new car can be exciting. There is a lot to think about, from picking out the color and interior options to test driving different vehicles when choosing the perfect car for you. When considering a new car, however, one of the biggest factors for many consumers is the price of the vehicle. While there are numerous options, from trucks to cars to SUVs, most people want to make sure that they can afford the car that they want.
With car prices rising today, it’s no wonder that most consumers rank purchase price as their number one consideration when car shopping. Like a home or purchase that requires monthly payments, you want to ensure that you can afford your auto loan and the other financial considerations that come with car ownership. Consider several factors when determining if you can afford a new car, from down and monthly auto loan payments to insurance coverage.
The first thing to consider is the purchase price and the loan amount you can afford. An auto loan calculatorwill help you get a good estimate of your monthly payment and the cost of your car loan. Additional factors such as your down payment and credit score will also play a role in your auto loan price. Determining an estimated monthly payment will be the key to understanding how much of a new car you can afford. Let’s look at some other considerations for determining how much you should spend on a new car.
Calculate what you can afford
After you put a car price into a car loan calculator, you will get an idea of what a monthly payment might look like. Most experts recommend that you spend no more than 10 percent of your take-home pay on your monthly auto loan. As an example, if you clear $3,000 a month, you’ll want your car payment to be around $300. As discussed, factors such as your credit score, loan term, and interest rate will impact your monthly payment. The amount of time that you make payments on your loan will also impact your monthly payment. With these things in mind, you will have a better picture of what you can afford.
Factor in auto insurance premiums
Aside from the monthly payment on your auto loan, you will also need to look at the cost of auto insurance when considering what you can afford. Most states require that you have a minimum amount of liability insuranceon your vehicle to drive on the roadway legally. The financial institution that holds your auto loan or lease will typically require an additional full-coverage policy to protect the car’s full value.
The average insurance premium can be around $1,500 a year or $125 a month. Depending on your car, driving record, age, and other factors, you could pay significantly more or less. Browing sites like PolicyScouterwill help you find the right insurance product and the best rates for your needs.
Consider the cost of maintenance and gas
Your monthly auto loan payment and auto insurance premium will account for a significant portion of the cost of owning a new car. Additionally, however, you will need to think about the cost of maintenance and fuel for your vehicle. Gas prices are steadily climbing, and a big truck or SUV could mean that you need to budget several hundred dollars a month for gas. Additionally, different cars have various maintenance needs for oil changes and other services. You will need to factor these costs into your monthly budget.
Buying a new car can be a fun experience, but it will also take some time, research, and planning. To ensure that you can afford your new car, you’ll want to consider your monthly budget, auto loan terms, insurance premiums, and vehicle maintenance. Like most major purchases, you will need to weigh your options to determine the right vehicle and payments for your situation.