How Much Can You Spend on a Vehicle?
Finding the Right Fit For You
Before you start the search for your next vehicle, take a moment to evaluate your current finances to determine how much you can spend. Knowing how much you can afford before you head to the dealership can help speed up the process by keeping you focused on cars within your price range. It can also help sales representatives make suggestions that can help you find a vehicle that fits your lifestyle and your budget.
Let's explore how to figure out how much you can afford to spend on a vehicle.
Determining Your Monthly Transportation Budget
The first thing you need to do is determine what your monthly budget is for all of your transportation expenses. The leading financial experts advise spending 10% to 15% of monthly household income on transportation. For example, if you take home $5,000 per month after taxes and health insurance, your transportation budget should be between $500 and $750. That doesn't mean you can spend the whole shebang on a car with massaging leather seats, a premium stereo, and a V8 engine. Your transportation budget should include your car payments, fuel, maintenance, insurance, and other expenses associated with owning a vehicle. Review the list of car expenses below to get a full picture of what you should be budgeting for.
Transportation Expenses
Car note. If you choose to finance your vehicle, the most expensive ongoing transportation cost will be your monthly car payment. A good percentage of your car note won't go toward the price of the vehicle but rather the interest on the car loan. To lower your monthly payments, shop around for the best financing rates you can find.
Taxes and fees. When you own a vehicle, you have to pay taxes and fees such as sales tax, registration fees, and insurance premiums.
Fuel. The cost of fuel will vary depending on the type of vehicle you own and how much you drive. On average, Americans spend between $150 to $200 a month on gas. When you have a shortlist of vehicles you'd like to compare, you can get a more accurate estimate by using the formula below.
Annual Fuel Cost = (Annual Miles Driven / MPG) * Fuel Price per Gallon
Divide the results by 12 to get a rough estimate of your monthly fuel expenses.
Maintenance and repairs. Even with proper maintenance, vehicles still require occasional repairs. The American Automobile Association suggests setting aside $75 a month for car maintenance to account for inflation and unexpected repairs.
Insurance. To obtain insurance coverage, you can request a quote from the insurance provider of your choice.
Putting It All Together
Once you know your monthly transportation budget, simply subtract the estimated cost of insurance, maintenance, fuel, taxes, and fees. What remains is the amount of money you can afford to spend on a new car payment. Determining how much car you can afford is crucial. Follow these steps to calculate the total cost of car ownership and decide on a monthly car payment within your budget. Visit Land Rover Roanoke for a wide selection of new and used vehicles and expert assistance.