Balancing Your Budget With Car-Buying: How Much Car Can I Afford?

Balancing Your Budget With Car-Buying: How Much Car Can I Afford?

1st Apr 2021

Buying a new car is a significant investment, and one that you should take seriously. There are plenty of ways to avoid overspending. Some of them — such as the basic needs you have for the vehicle — aren’t negotiable. Before shopping, it’s smart to take a look at your budget and see how a car payment fits into it. The type of car you can buy depends on a lot of factors, so it’s important to keep them in mind as you plan.

What Can You Afford to Spend on a Car? 

When you’re thinking about what features you can get in a car, start with the amount you can pay. Figure your income, monthly payment and other expenses:

  • Income: Experts recommend keeping your car payment around 10% to 15% of your take-home pay. Since most car payments are set by the month, you’ll need to break down your income by the month as well. Some people can afford to spend a higher percentage, but it depends on your income and other expenses.
  • Monthly payment: Monthly payment is based on total cost of the car (including sales tax and fees), the interest rate and the duration of the loan. If you pick a three-year loan, you’ll have a higher payment than you would for a four-year loan. Think about when you want to pay it off, because that can significantly change the affordability of a vehicle.
  • Overall budget: Add a monthly car payment into your budget and see how it works. If your budget is out of date, refresh it. Be sure to include all of your regular expenses like rent, utilities, gas, groceries, childcare, etc. You want to be certain that you can make the payment on time each month — even if your income doesn’t change.

How Much Car Can You Afford Based on Salary?

Buying power depends a lot on the car you want and the way you plan to finance it. Start by making a list of the features you really need from the vehicle. For example, an inexpensive compact can work for a single person or a small family, but it might not be enough for some buyers. Note the features you hope to get — such as miles per gallon, heated seats or four-wheel drive. Organize it by needs and wants, and don’t forget these common cost factors.

New vs. Used

It’s tempting to think that buying a new car is the best investment, but that’s not necessarily true. New cars lose the most value in the first year. Buying a car that’s a few years old may offer many years of value at a much lower price. Consider the following:

  • Lease versus buy: Leasing a car usually has a lower monthly payment, because you’re not buying it. If you want to buy it later, you’ll have to pay a portion of the total cost of the vehicle. If you only need a car for a few years or you must have a lower payment, it might help you afford it.
  • Buy outright versus financing: You can always buy a car without financing, but you’ll need to save the cash first. Most buyers choose to finance the vehicle, because they can spread the payments over time instead of paying for it all at once. With financing a vehicle through JDBNOW, you know there's someone who has your back if something were to go wrong. Our dedicated service departments are here to keep you on the road.

Down Payment

A down payment can reduce your monthly payment, and many lenders require one to buy a car. You don’t always have to make a down payment, but if you’re struggling to fit a monthly payment into your budget, it can help.

Before you start browsing for a car, make sure you can pay for it based on your income and budget. With JDBNOW’s buy here pay here financing, find out how much you can afford, apply for a loan, and buy it all at once. Find out how much you can afford, apply for a loan and drive away in the same day!