How Much Car Can I Afford?

Buying a car is a big financial decision for you, and it is important to know how much car you can really afford. You must first get your finances in order and make a budget. If you cannot afford a fancy car, do not buy a fancy car, no matter how good the “deal” sounds. The average American spends 11% of their gross monthly income on their car, which is a substantial commitment. Depending on how much your mortgage or rent payments are, you might be able to commit more of your income to your car loan, but you should never exceed 20% of your gross income.

Cars depreciate in value quickly, and you will most likely end up paying more on your loan than your car originally cost. That is especially true nowadays with people changing cars as often as three times a year. It might be a better option to save up and pay for your car in cash and take the cash-back incentive. This all depends on how much you have saved up and can afford. Paying up front in cash is probably the cheapest option, but not many people have the money to do this. Financing might be your best option; just make sure you do not buy a car that is more expensive than you can afford. Remember not to let your wants overtake your needs.