🚗 How Much Car Can You Afford? A Comprehensive Guide for Different Salary Ranges
Are you in the market for a new car but unsure of how much you can afford? With car payments reaching new heights, it's important to know your budget before you start shopping. In this article, we'll go over how much car you can afford based on your salary range. We'll also cover car buying rules, ways to save money on car payments, and whether financing or leasing a car is better for you.
📝 Table of Contents
- The 35 Rule: How Much Should You Spend on a Car?
- Monthly Payments: The 2410 Rule
- Should You Buy or Lease a Car?
- Three Tips for Saving Money on Car Payments
- The True Cost of Owning a Car
- Conclusion
- FAQs
The 35 Rule: How Much Should You Spend on a Car?
The 35 rule states that the most you should spend on a car is 35% of your gross annual income. For example, if you make $40,000 per year, the most you should spend on a car is $14,000. If you make $80,000 per year, the most your car should cost you is $28,000. And if you make $150,000 per year, your max car price should be $52,500.
While the 35 rule is aggressive, it's geared towards car enthusiasts who take pride in owning a certain type of car. If you're looking for a basic car that gets you from point A to point B, consider the 20 or 25 rule instead. The 25 rule is a sweet spot that allows for some amenities without breaking the bank.
Monthly Payments: The 2410 Rule
The 2410 rule recommends that you make a 20% down payment on your car and finance it for no more than four years. The 20% down payment ensures that you're in a financially responsible position to buy the car and helps you build equity in the car more quickly. Financing for no more than four years keeps your monthly payments manageable and prioritizes paying off the car before it depreciates too much.
The 10 in the 2410 rule refers to keeping your monthly car payments, including insurance and maintenance, to less than 10% of your gross monthly income. This leaves room in your budget for other financial situations that may arise.
Should You Buy or Lease a Car?
Leasing a car makes sense if you want a new car every three or four years or if you want a lower monthly payment. Leasing requires a low down payment, usually zero, and includes warranty coverage. However, there are mileage limits, and you have to return the car to the dealership or buy it outright at the end of the lease.
Buying a car makes more sense if you want to own it for a long time. You can pay for it all in cash or finance it. Financing makes more sense if you're an investor because it allows you to invest and compound your wealth.
Three Tips for Saving Money on Car Payments
1. Call around and ask for different insurance rates. Insurance companies compete with each other and may offer you a better deal than your current provider.
2. Buy a used car that's three to five years old. Most of the depreciation has already occurred, and you can save money on the purchase price.
3. Get a car that's not too expensive to maintain. Use the True Cost to Own calculator on edmunds.com to compare maintenance and repair costs for different cars.
The True Cost of Owning a Car
Cars are a depreciating asset, meaning they lose value over time. The True Cost to Own calculator on edmunds.com can help you compare the total cost of owning different cars, including maintenance, insurance, and repairs.
Conclusion
Knowing how much car you can afford is crucial before you start shopping. The 35 rule, 2410 rule, and tips for saving money on car payments can help you make an informed decision. Remember, the lower you can spend on a car, the better for your long-term financial goals.
FAQs
Q: What is the 35 rule?
A: The 35 rule states that the most you should spend on a car is 35% of your gross annual income.
Q: What is the 2410 rule?
A: The 2410 rule recommends that you make a 20% down payment on your car and finance it for no more than four years.
Q: Should I buy or lease a car?
A: Leasing makes sense if you want a new car every three or four years or if you want a lower monthly payment. Buying makes more sense if you want to own the car for a long time.
Q: How can I save money on car payments?
A: You can save money on car payments by calling around for different insurance rates, buying a used car, and getting a car that's not too expensive to maintain.
Resources:
- Edmunds.com's True Cost to Own calculator
- https://www.voc.ai/product/ai-chatbot (Introducing AI Chatbot)
