How Much Car can I Really Afford?

Got your eye on a brand new ride? Exciting, isn’t it? Shopping for the vehicle of your dreams can be an exhilarating experience. There’s just something about that new car smell that revs up the engines and puts you in a buying mood. But getting caught up in the moment can make it easy to overspend. So before you fork over your hard-earned cash, take some time to think about what you can realistically afford.

Don’t worry. Budgets don’t have to be a bummer. With a little homework and some basic number crunching, you can get the car you want without emptying your pockets.

Be a Wiser Buyer

If you go into the purchasing process with some key numbers, you’ll be more prepared to buy. And the numbers are fairly simple. You earn an income and you have expenses. The amount left over after paying those expenses is the money you have to spend on cool things — like cars!

Let’s take a look at a few smart ways to buy with a budget in mind:

The 20% rule. Financial experts say your car-related expenses shouldn’t exceed 20% of your monthly take-home pay. So, let’s say you bring home about $2,500 each month. The total amount you should spend on your car — including loan payment, gas, insurance and maintenance — is right around $500. If you stay within these limits, you should have no problem paying for your ride. Want to spend a little more, you can always cut back somewhere else.

Money down. Have some extra money saved for a down payment? The more you put down, the less you’ll have to borrow, the less interest you’ll pay over the length of the loan, and the lower your monthly payment. And, your down payment doesn’t have to be all cash. Got a trade-in? That counts too.

Extras add up. Ever notice how the advertised price and the “as shown” price are rarely the same? That’s because dealers typically advertise a stripped-down model, with a very stripped-down price, to grab your attention. But the car you really want has a host of added options and extra fees. Ask yourself if you really need those premium chrome wheels and that wide-angle backup cam. Because if you can get by without, you can save some serious cash.

Bottom line: With a basic budget and some smart shopping now you can save big money down the road. If you’re ready to buy but not quite sure where to start, check out these 9 tips to buying your dream car.

Want to find the right insurance for your new set of wheels? Your American Family agent can help you build a policy that fits your life.

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Related Topics: Finance