Purchasing a vehicle can be exciting and nerve-wracking at the same time. While it’s fun to pick out a vehicle to fit your needs, dealing with financing or trade-in values can also be daunting. If you take some time on the front-end of vehicle ownership to get an estimate of your trade-in and figure out the amount of financing you can afford, the process can be a lot smoother. When it’s time to start shopping, how do you know how much car you can afford for $300 per month?
How Much Can You Afford?
One of the most important factors of owning a vehicle is knowing how much you can afford before purchasing anything. You need to consider factors such as insurance coverage, fuel costs, and the expense of any future repairs when budgeting for a vehicle purchase. There’s more to just the price tag in the vehicle window when it comes to financing a vehicle.
Do you have money for a down payment or a vehicle to trade in to lower the overall amount you need to finance? Are you able to pay for tax, title, and licensing upfront, or do you need to roll those expenses into the loan? These are all aspects of the car-buying experience that help determine how much you can afford to borrow.
Consider Your Salary
The primary deciding factor in how much you can afford for a car payment is your take-home pay. When looking at the car payment itself, experts recommend that you keep a new car payment at no more than 15% of your take-home pay, while a used car should be no more than 10%. Once you add in expenses such as fuel, maintenance, and insurance premiums, you don’t want to exceed 20% of your take-home pay with either a used or new vehicle.
Your salary will also be considered by any private lenders or dealership financing in order to receive approval for financing. Lenders look at your debt-to-income ratio, which compares what your income is versus your monthly expenses. Most lenders prefer a DTI of no more than 45%, although some will work with you if you’re as high as 50%.
Use a Car Loan Calculator
Before stepping foot onto the dealer’s lot, you should run your information through a car loan calculator so that you know how much you can afford. To get an accurate estimate, you need to:
- Get a copy of your credit report and credit score. A higher credit score means a lower interest rate with most lenders.
- Contact several lenders to get pre-qualified to compare interest rates to determine the average interest rate you could be offered. If you pre-qualify within a two-week period with several lenders, it will only count as one hard inquiry.
- Use an online car loan calculator to estimate payments using the average interest rate, desired repayment term, and car price.
Determine Insurance and Fuel Costs
Insurance premiums vary by vehicle type and individual drivers. If you already have car insurance, you can contact your agent to run vehicles you’re interested in to see what the going insurance rate would be. You may also want to take this time to reach out to several insurance agents for quotes so that you can compare the bottom line of your insurance costs and get the best deal. Factors that affect your insurance costs include:
- Driving record.
- Daily mileage and usage.
- Where you live.
- How old you are.
- Your gender.
- Credit history.
- Qualifying discounts.
- Type of coverage.
- Amount of coverage.
- Selected deductibles.
You can also research the average fuel economy of vehicles you’re considering. Think about how many miles you drive to work or school each day, as well as what type of driving it is. Do you drive more in the city or on the highway? Fuel economy varies based on whether you’re doing a lot of starting and stopping or rolling down the road at a steady speed.
Take the average miles per gallon of the vehicles you’re looking at and figure out how much fuel you will use per month, then multiply that by the average gas prices in your area. This will provide you with an estimate of fuel expenses per month.
Consider Future Repairs
Another factor you’ll want to consider is the expense of any future repairs, such as replacing a battery or tires or fixing the brake pads and rotors. Research the average costs of parts and service on any vehicles you’re considering as possible purchases to compare the costs. Depending on the make, model, and year, repair and maintenance expenses can vary quite a bit from one vehicle to another. While these expenses aren’t upfront costs, you need to plan for basic repairs and maintenance for any vehicle, no matter how new.
Be Realistic
Purchasing a vehicle can be an exciting experience, and finding the car of your dreams with all the features you desire can make anyone smile. Be realistic when considering your budget because a vehicle isn’t worth the car payment if you can’t afford to drive it or maintain it. Don’t push your budget to the last penny. It’s better to have a little more to put toward repairs, maintenance, or even eating out or catching a movie at the cinema than to have to push it to make ends meet each month for your car payment.
How Much Car Can You Afford for $300 a Month?
If you’ve used a car loan calculator, added in for fuel, maintenance, and insurance, and find that you can realistically afford $300 per month for your car expenses, it’s time to look at what type of car that will get you. Depending on your credit score, you’re looking at a quality used vehicle between $8,000 and $12,000. Rydell Outlet offers a wide selection of vehicles in this price range and can work with you to get financing, even if you have bad or no credit.
Whether you’re looking for a family-friendly vehicle like a Honda Odyssey, a fuel-efficient model like a Nissan Versa, or a work-ready truck such as a GMC Sierra 1500, we’ve got you covered. You can even buy your used car online and have it delivered to your home with Rydell Delivers. Check out our inventory online or stop in today! Contact a Rydell team member for more information.
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