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How to Budget to Buy a Car

Buying a car can be as stressful as it is exciting, due in no small part to how expensive they are. The one question that many people ask themselves when deciding to buy a car is how they will afford it, as much more goes into it than car payments. Most people need to get a car loan, then they need to insure the car, and maintenance costs can add up to make owning a vehicle incredibly expensive.

In this article, we’ll discuss how to properly budget to buy a car so you can comfortably afford it. Everyone’s financial situation is different, but with these tips, you should be able to buy the car you need without harming your financial standing.

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Calculate the Car Payment You Can Afford

The first thing to consider when budgeting to buy a car is what kind of car payment you’ll be able to afford. Most financial experts suggest that car buyers spend no more than 10% of their monthly take-home pay on their car payments. Some car buyers can afford this comfortably, but for those who struggle to save this percentage of income, you may need to consider a lengthy car payment plan.

The recommended car loan payment term for used car buyers is about 36 months, and 60 months for new cars. While a longer loan term will reduce the cost of your monthly payments, you will end up paying much more in interest. This is why it’s vital to consider your overall financial security before taking on any burdensome car payments.

Calculate the Car Loan You Can Afford

Once you’ve calculated how much you can afford to pay in car payments, you can then figure out how much you can actually borrow. This will depend on various factors, including your credit score, loan term, and whether you buy a new or used car.

Your credit score will determine your annual percentage rate (APR) on the loan, which in turn determines how much interest you’ll pay on the loan. The higher your credit score, the lower your interest rate usually is, and vice versa. A low credit score is often one of the main reasons people struggle to buy a car.

As mentioned above, the length of your loan term will contribute to how much your monthly payments cost. The shorter your loan, the more you have to pay each month, but the less you’ll have to pay in interest. These tradeoffs are swapped the longer your loan term gets, with monthly payments being lower but interest payments accumulating more and more over time.

Whether your car is new or used contributes to how high your APR is, with new car loans typically having a lower APR. Used cars usually benefit from lower monthly payments, but it’s important to research if the vehicle has a history of breakdowns or malfunctions.

Consider All Car-Owning Costs

While car payments and loan interest will take up a large portion of your car-owning costs, other smaller expenses can add up over time. Maintenance costs, gas, and unexpected repairs can make regular dents in your bank account, and if you’re not prepared, you may not be able to afford to use your car.

When you’re searching for cars, look for ones that are generally inexpensive compared to other options, fuel-efficient, and have a reputation for reliability. All of these factors will contribute towards saving you money and ensuring you can use your car without worrying about your wallet.


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Roni Davis is a writer, blogger, and legal assistant operating out of the greater Philadelphia area. She writes for Cousin Benny, a Philadelphia car accident lawyer.

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