How much car can I afford?

by Valerie Hawkins

You’re cruising down the road on the way to work. Slowly sipping your morning coffee and listening to your favorite playlist.

And then you see it.

Your dream car.

That sporty coupe convertible. It’s sitting next to you at the red light. And it’s even in your favorite color.

You’re in the market for a new car. Maybe this is your sign to stop by the dealership over your lunch break and take that beauty for a test drive. But your inner financial-savvy senses kick in. (Don’t you hate when that happens?)

You ask yourself: “Can I afford this car? What car can I afford!?”

When it comes to determining if your dream car is within reach, start with these simple steps today. 

Step 1: Lease or buy?

Perhaps you’ve never considered your options when it comes to leasing or buying your next set of wheels. Check out the pros and cons for each option, to see which works best for you. 

Step 2: Consult your budget

A good starting point is your budget. Experts say your total car expenses, including monthly payments, insurance, gas and maintenance, should be about 20 percent of your take-home monthly pay.

For non-math wizards, like me – Let’s say your monthly paycheck is $4,000. Then a safe estimate for car expenses is $800 per month. 

Step 3: Plug and chug

Take your monthly payment estimate from step 2, and plug it into this handy dandy calculator. It’ll help you determine how much car you can afford.

Step 4: Test drive your car payments

If you can hold off from buying a car for a few months, it’s a good idea to test out your monthly payments.

For example, if your car payment will be $800 per month, take that amount, and put it into savings instead. If you can make timely payments on your other bills, and still put food on the table, then it’s safe to say that is an appropriate monthly payment for you to handle. Plus, that’s more money you have in the bank to go towards a down payment.

Step 5: Buy a car you can afford

Here comes the fun part. Walk into the dealership and sign those papers. Your next commute to work will be a little more exciting.