How Much Can I Afford for a Car? | Andy Mohr Speedway Chevy

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When you’re shopping for a car, it’s important to first calculate your monthly budget and figure out how much you can afford. To guide Indianapolis, Fishers, and Speedway drivers toward finding the right car for them, we’ve compiled these tips on budgeting for a car. Our finance team at Andy Mohr Speedway Chevrolet is eager to help you plan your finances.

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How to Create Your Budget

There are a few ways for drivers to calculate a budget for their next vehicle, and there are a few good rules of thumb to go by. The first and probably the easiest is to go by a percentage of your annual income.

A good place is to start by considering 20% of your annual income and starting from there. For example, if you’re making $100,000 a year, you can comfortably afford a car that costs around $20,000.

If you’re on a bit of a tighter budget, you could always go by 10% of your annual income. As an example of this, if you earn $50,000 a year, you’ll be able to easily afford a car that costs $5,000.

However, when it comes to really budgeting effectively, it’s important to consider every aspect of your monthly expenses. Planning out your monthly expenses by percentage is easy, but it’s always good to go through all your purchases and calculate how much you spend each month. Consider what you can cut down on the streamline your budget for your car purchase.

Use the 20/4/10 Rule

Another method of calculating a budget for your car purchase is by utilizing something called the 20/4/10 rule. It basically argues that you should go by the down payment you’re able to put down on the car. As the name implies, if you want to buy a $20,000 car but can’t put $4,000 down as a down payment, you should pay a $2,000 down payment on a $10,000 car instead.

This is a good way to factor in the percentage of your actual monthly spending your car will take up. By doing this, you’re able to figure out if you can afford a car that will fit into about 10% of your monthly spending.

Consider Other Factors of Your Payments

When you’re budgeting for a car, it can be very easy to look at the sticker price and think that’s all you need to pay. It’s important to also factor in tax of the car purchase as well as any registration paperwork that needs to be taken care of.

In addition to that, you’ll also want to consider the costs for gas, maintenance and insurance. It’s always good to contact your insurance company to see how much your rates will be with your new car. While the initial sticker price may seem comfortable, you want to be prepared for everything when it comes to finances.

Consider Your Future Financial Situation

Buying a car is a big decision, and so when budgeting for your next vehicle, it may be a good idea to consider your future financial needs. If you’re looking forward to major life events in the future such as:

• Buying a house
• Going to college
• Marriage

You might want to consider how your car financing may affect that. Don’t choose to finance for too long, so your finances aren’t bogged down by with the need to pay off any loans.

How Is an Auto Loan Structured?

Before you decide to finance your next car, it’s a good idea to make sure you’re equipped with all the knowledge you need to finance like a pro. Overall, there are a few major aspects of your loan that you should consider before you purchase your next car. These include:

• APR (Annual Percentage Rate)
• Loan Term
• Down Payment

APR (Annual Percentage Rate)

One of the most important parts of your loan is going to be your APR or your interest rate. This is a measurement of by what percentage your principle loan raises each year. If you have an APR of 5%, your loan will go up by 5% by the time a full year has passed since you created the loan.

One of the major ways this affects your loan is by raising your monthly payments. If you want to get the lowest monthly payments possible on your vehicle, it’s good to look for the loan with the lowest APR.

Loan Term

Where your APR can really start to affect you is when you have a long loan term. Your loan term is the length of time you have projected you will have the loan paid off by. The longer the loan term the lower your monthly payments.

If you choose a long loan term though, it can mean you pay more in the end because your APR makes your loan go up every year. If you want to keep your interest down, you’re going to want to pay off your loan as soon as possible.

Down Payment

In many cases, you may be expected to provide a down payment before you can purchase your vehicle. This is money that you pay to show that you have the ability to pay off your loan. Even if a down payment isn’t required, it’s still a very good idea to make sure you provide even a small down payment.

So, how much should you give for your down payment? The answer isn’t always clear cut, but it’s often a good idea to provide a down payment equal to about 20% of the car’s value. If you want to pay a smaller down payment, it’s often reasonable to provide a 10% down payment instead.

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Visit Our Finance Center Today

At Andy Mohr Speedway Chevrolet, we want to provide financial services that work with you. Our team is always here to help Indianapolis, Fishers, and Speedway drivers out when they’re looking for their next car.

If you’re looking to plan out the budget for your next car, explore our website and use our payment calculator today!

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