Do you find yourself asking “what car can I afford?” or “how much should I pay for a car”? We can help you to decide if you can afford that brand new car. Learn how to calculate your car affordability here.
How much should you spend on a car?
Before you step into a dealership, you need to ask yourself “how much should I spend on a car?” A lot of car owners forget that a car is more than just its sale price. There are also factors such as interest, maintenance, and insurance to take into account. The price you will spend on a car will depend on what model you can afford, whether you are buying a new or used car and whether you require finance or you are paying with cash.
How much is a car and does it fit in your budget? Car finance is the affordable option for most who can’t afford to pay for a car with cash but it comes with an interest every month and a large down payment. You need to have a lot of cash upfront for this and budget accordingly for each monthly installment. If you fall behind on payment, you may pay extra.
If you have the cash for a new car, don’t forget to add on the costs of maintenance and service. You also need to budget for the petrol price increases. You might find yourself having a lot less cash than you expected – consider an older or cheaper model or rent-to-own options which will help you to get a new car without leaving you with an empty bank account.
How to calculate how much you can spend on a car
If you find yourself asking “how much car payment can I afford?” the answer is a cost calculator. Calculate your expenses for the month and deduct that from your income. The amount you’ll receive is how much you can afford to spend a month on a car. Your expenses are likely to be around 10%–15% of your monthly income.
If you are financing a new car, financial experts usually recommend that your payments be calculated by following the 20/4/10 rule. Make a 20% down payment for a four-year car loan and spend no more than 10% of your monthly income on your car expenses.
Other costs to take into account
As mentioned, there are other expenses to take into account such as maintenance, taxes, fuel, and the cost of interest on a car loan. A simpler and more affordable solution to get a new car is to use Earn-A-Car’s rent-to-own options which lets you choose a fixed monthly plan, a low administration fee, and includes insurance costs.
The next time you find yourself asking “what car can I afford”, give us a call today and we will help you out!