How Much Car Can You Afford?

By Lynnette Khalfani-Cox, The Money Coach®

When you go to a car dealer to purchase a new or used vehicle, one of the first financial questions that a car salesman will typically ask you is: How much do you want your monthly payment to  be? 

Unfortunately, that is precisely the wrong question to consider if you want to make a wise economic decision about buying a car. To know how much car you can truly afford, you need to consider two factors: the true, total cost of car ownership, and all of the other expenses you have to pay each month.

Here’s how to evaluate each so you can better understand how much car you can afford.

The True, Total Monthly Cost of Car Ownership

It would be nice if the cost of having a car amounted solely to your monthly car loan payment; but that’s far from reality. According to a study from AAA, in 2017 it cost almost $8,500 annually – that works out to about $700 a month — to own and operate an average-sized sedan that’s driven 15,000 miles a year.

Smaller sedans are cheaper to drive, but they still cost an average of nearly $6,400 a year. Meanwhile, pickup trucks are the most expensive vehicle to drive, at a cost of more than $10,000 a year. If these numbers seem awfully high, perhaps it’s because you’re not taking into account the operating costs of having a car and ongoing ownership costs. This is where car salesmen do a good job – getting you to focus exclusively on the monthly loan payment to purchase a new or used vehicle.

But AAA’s figures include operating costs, like gas, maintenance, repairs and tires, along with ownership costs, such as insurance premiums, depreciation, license fees, registration and taxes. So when you finance a vehicle, don’t be swayed by a salesman who says that your car payment might be “only” $300 to $500 a month. That cost is in addition to the other expenses you’ll be paying out each month for the luxury of having your own set of wheels.

Your Other Financial Obligations

Before you decide on a car that’s right for you, and one that you can really afford, you should first run the numbers on your overall budget. Give a detailed look at some key figures, like your housing payment, your credit card debt, and the amount you spend monthly on food and utilities. Then consider how much room you have in the budget to comfortably pay all the expenses listed above for a car.

No matter how much you might fall in love with a car you test drive, or one that a salesman steers you to on a dealership lot, there is no sense in buying a vehicle that is out of your price range given all your other monthly obligations.

Getting a new or used car can be a fun experience. But don’t let any vehicle drive you into the poorhouse!


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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or BALANCE counselor who can help tailor a solution for you.

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