Many factors determine the answer. We often approach purchasing a new car based on what the monthly payment looks like. While we can get the answer to how much we can finance a vehicle for, this doesn’t necessarily answer the question of how much you should spend on a car.
The right auto budget depends on your overall financial picture, lifestyle needs, and long-term goals. While you may be approved for a certain amount, choosing a vehicle that comfortably fits within your monthly budget can help reduce financial stress and make car ownership more manageable over time.
What Expenses Should You Consider Beyond the Car Payment?
It’s important to look beyond the monthly loan payment alone when you’re determining how much you should spend. Owning a vehicle comes with several ongoing expenses that can quickly add up — especially in today’s challenging economic environment.
These costs may include:
● Auto insurance
● Fuel expenses
● Routine maintenance
● Repairs and tires
● Registration and taxes
● Parking or toll expenses
Keep in mind a vehicle with a lower monthly payment may still come with higher insurance premiums or maintenance costs, which means looking at the total cost of ownership may provide a more realistic picture of affordability.
How Much Of My Monthly Income Should Go Toward A Car?
Financial experts often recommend keeping total vehicle expenses within a reasonable percentage of your monthly income, typically around 10 percent. This can help leave room in your budget for housing, savings, groceries, childcare, and other everyday expenses.
When reviewing your budget, consider:
● Your current monthly debt payments
● Emergency savings goals
● Household expenses
● Future financial plans
● Lifestyle priorities
A car should support your daily life without making it difficult to meet other financial obligations comfortably.
Should I Buy New Or Used?
One major factor that affects how much you should spend on a car is whether you choose a new or used vehicle.
New vehicles may offer the latest technology, warranty coverage, and lower maintenance needs early on. However, they also come with higher purchase prices and faster depreciation (especially within the first two years).
Used vehicles may provide a more affordable option and keep you from taking a large hit on depreciation during the first few years of car ownership while allowing you to stretch your budget further.
How Does My Credit Score Impact Car Affordability?
Your credit score can play a major role in determining your auto loan interest rate and monthly payment. Borrowers with stronger credit may qualify for lower interest rates, which can reduce the total cost of financing a vehicle.
Before shopping for a car, it may help to:
● Review your credit report
● Pay down existing debt if possible
● Avoid taking on additional large purchases on credit
● Estimate your comfortable monthly payment range
You can also get pre-approval for an auto loan, prior to stepping into a dealership or dealing with a private party. This gives you a much more accurate picture of what a monthly payment looks like.
At Space Age Credit Union, we offer auto loan pre-approval and make it easier for you with our online application. You can also use our auto loan calculator, so you can see how much a monthly payment will impact your budget.
