Purchasing a car is most likely one of the biggest purchases you’ll make during your lifetime. It’s not a decision you should take lightly, and before jumping in and signing on the dotted line, you want to make sure you’re going home with a car you can comfortably afford. You never want to feel buyer’s remorse because you spent too much on your car. To avoid biting off more than you can chew, there are several steps you can take to ensure you’re making a wise decision when it comes time to purchase your next vehicle.
At Huffines Kia Corinth, we believe in treating our customers like family. That means we’ll give you the same information and advice we would give to our family members when they decide on a budget for their next vehicle purchase. Your monthly income, spending habits, and credit score are important when determining how much you can afford to spend on a car. On top of that, the type of car you purchase will determine how much you’ll need to pay monthly for insurance, gas, repairs, and maintenance. Let’s dive in to help you determine how much car you can afford.
Take a Look at Your Income
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One of the first things you should consider when deciding what car you can afford is your monthly income. It’s generally recommended to spend around 10% of your bring-home pay on transportation expenses each month. These expenses include your car payment, insurance, gas, and repairs. For example, the median household income in the United States in 2022 was around $74,000. In Texas, the net pay after taxes for this income would be about $59,000. Dividing this by 12 means monthly net pay would be around $4,900, and 10% of this would come out to $490 a month for transportation expenses.
We recommend using our online payment calculator tool to help you figure out how much your monthly car payment will be. This tool will help you play around with different scenarios to see what price tag is realistic for your budget.
Consider Your Credit Score
Your credit score can have a big impact on how much car you can afford. For one thing, it will help determine whether you can get approved for an auto loan at all. If your credit score is too low, lenders might consider you too high of a risk and deny you the opportunity to get the loan you want. If this is the case, the car you can afford is the one you can afford to pay cash for upfront.
For most people purchasing a car, an auto loan is within reach. However, the higher your credit score, the lower your interest rate will likely be. A lower interest rate will reduce your monthly payment, allowing you to afford a more expensive car. For example, let’s say you wanted to take out an auto loan for $30,000. If your credit score is exceptional, your interest rate for a 60-month loan would be around 7%, and your monthly car payment would be around $595.
In contrast, if you have a poor credit score, your interest rate might jump as high as over 17%, making your monthly payment nearly $750. You’ll also end up spending just under $15,000 in interest over the life of your loan, compared to somewhere between $5,000 and $6,000 with the lower interest rate.
Look at Your Spending Habits
While the 10% rule is a great rule of thumb for helping you determine how much to spend on your car payment every month, it’s also important to be realistic about your spending habits. If you’re used to cutting corners and saving wherever possible, the 10% estimate will most likely be very comfortable. On the other hand, if you know you like to buy a latte before work every morning and enjoy going shopping every weekend, you might want to consider spending less than 10% on your car payment.
Consider Leasing vs. Buying
There are advantages and disadvantages to leasing or buying a car. If you’re considering leasing your next vehicle, you’ll benefit from having to put down less money and, generally, a lower car payment. That means you’ll be able to afford a slightly more expensive car because your monthly payment will be lower. On the other hand, getting a leasing contract is more difficult if your credit score is low. Buying often means you’ll be able to afford a less expensive car, but you’re more likely to get a loan than a lease with a low credit score.
It’s also important to look at loan and lease terms. Terms for leasing a vehicle usually have less leeway, with 36-month contracts being the most common. However, if you plan on getting a car loan, you might be able to spread out repayment of the loan over a much longer length of time, sometimes for up to eight years. Being able to spread out the length of your loan can lower your monthly payment to an amount that fits in your budget.
Think About Buying New vs. Used
No one can deny the appeal of buying a shiny new car fresh from the factory. However, that razzle dazzle comes with a hefty price tag, making used vehicles a much more affordable option for buyers on a budget. If you’re interested in a specific make and model, you can save thousands off the purchase price for a used vehicle that’s a couple of years old. Many times, the features and quality of the used vehicles will nearly match those of new cars, making the lower price tag even more appealing.
Let Huffines Kia Corinth Answer Your Questions Today
If you’re still unsure about how much car you can afford, let our finance team at Huffines Kia Corinth help you out. Contact us today with any questions you might have about buying or leasing a vehicle. We’re happy to help you determine your budget and find a car that matches your needs. At Huffines Kia Corinth, we’ll treat you like family and guide you through every step of the process with care.