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How to Calculate an Affordable Car Payment

10
June

If you plan to finance your next car purchase, you have to figure out how much you can afford to pay monthly. Affordable car payment limits will be different for each family and individual because they depend on many factors. For some families it can be five hundred dollars, while for others it can be one thousand. The payment must fit into the budget. This means considering other expenses you have and will have in the future.

You probably have other debt payments, like mortgage or rent payment, credit card or other loan payments. It is recommended to have those obligations not to exceed 45 percent of your gross monthly income. Mortgage or rent payment takes about 25 percent of this amount. The other 20 percent is for other debts. So, if your gross monthly income is $4,000, the mortgage or rent will be about $1,000. The remaining 20 percent or $800 will cover debt payments. If you do not have any other loans or credit cards, you can buy two cars with a total payment amount up to $800. Those who have no other obligations, like children living at home, they can afford a higher car payment. If you make $2,000, your car payment can be up to 30 percent or $600.

It is important to calculate the expenses associated with car financing. First of all, another expense is car insurance. Financed vehicles are required to have a full insurance coverage. It is more expensive than just basic insurance policy, and depends on the year, make and model of the vehicle. It is essential to contact the insurance agent for this information prior to purchasing a car to make sure that you can afford this additional expense.

There is more to car financing than a car payment and insurance. While it’s optional, car warranty is another expense to be considered. Many people consider it unnecessary but a warranty can save a lot of money if the car breaks down. Car parts and labor can be very expensive for some vehicles, like for upscale and luxury models. A warranty plan will cost a large amount upfront but will save a lot of money in the long run. Some plans have a deductible. This is another expense to consider when calculating related expenses. If you choose not to purchase a vehicle warranty plan, consider creating a special savings account for this expense.

Maintenance expenses, like changing oil, break pads, tires, etc. can also add up to a significant amount. If you have two vehicles, multiply these amounts by two. It is essential to consider all of these expenses before financing a car. Otherwise, the car may not be affordable in the end.

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