According to Edmunds, in Q4 a record 18.9% of consumers got a car loan for above $1,000 a month. Some of this has to do with rates, of course, with Edmunds reporting that just 2.4% of all new vehicles were sold with a loan featuring 0% financing.
Financial experts recommend spending no more than 10% of your monthly take-home pay on your car payment and no more than 15% to 20% on total car costs such as gas, insurance and maintenance as well as the payment. If that leaves you feeling you can afford only a beat-up jalopy, don't despair.
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A $30,000 auto loan balance with an average interest rate of 5.0% paid over a 5 year term will have a monthly payment of $566. In total, the loan will cost $33,968 with $3,968 in interest.
A person making $60,000 per year can afford about a $40,000 car based on calculating 15% of their monthly take-home pay and a 20% down payment on the car of $7,900. However, every person's finances are different and you might find that a car payment of approximately $600 per month is not affordable for you.
Example: A six year fixed-rate loan for a $25,000 new car, with 20% down, requires a $20,000 loan. Based on a simple interest rate of 3.4% and a loan fee of $200, this loan would have 72 monthly payments of $310.54 each and an annual percentage rate (APR) of 3.74%.
Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go.
If you plan to finance your car purchase, follow the 20/4/10 rule: 20% down, loan no longer than 4 years, and keep total car payment – including insurance – to a maximum of 10% of your gross monthly income.
According to experts, a car payment is too high if the car payment is more than 30% of your total income. Remember, the car payment isn't your only car expense! Make sure to consider fuel and maintenance expenses. Make sure your car payment does not exceed 15%-20% of your total income.
The old "20/4/10 rule" of car buying states that you should make a 20% down payment, have a loan no longer than four years, and have a total monthly car budget that does not exceed 10% of your take-home pay.
The number of new-vehicle buyers with payments of $1,000 or more is at an all-time high, according to Edmunds.com, a car-shopping website. In its fourth-quarter report, Edmunds found they represented 18.9 percent — or nearly 1 in 5 — of such borrowers.
Three major factors that determine your monthly car loan payment are your loan amount, the interest rate and the loan term. There are steps you can take — like making a down payment, improving your credit or choosing a different loan term — that can help reduce the amount you pay each month.
We recommend you aim to spend about 10% of your take-home income on your monthly car payment. So, if you take home $3,000 each month after taxes, you might be comfortable having a vehicle with a monthly payment of around $300.
“A widely accepted rule is that your car payment should not exceed 15% of your monthly take-home pay,” said Jeff Rose, a certified financial planner and founder of Good Financial Cents.
Payments would be around $377 per month. According to the results, it will take you 60 months, an interest rate of 5% of $2,645, to fully pay your $20,000 car loan. However, the monthly cost of a $20,000 car loan will depend on your repayment period and the annual percentage rate (APR).
Financial experts recommend that your monthly payment should be around 10% to 15% of your monthly take-home pay. Additionally, your total monthly car expenses should be no more than 20% of your monthly income, and this includes your car payment, insurance, maintenance and gas.
Step 2: Consult your budget
Experts say your total car expenses, including monthly payments, insurance, gas and maintenance, should be about 20 percent of your take-home monthly pay. For non-math wizards, like me – Let's say your monthly paycheck is $4,000. Then a safe estimate for car expenses is $800 per month.
What Are the Disadvantages of a Large Down Payment? Providing more money down doesn't guarantee a lower interest rate, and it can cut into your savings. Depending on the vehicle you choose to buy, 50% can be a lot of money to put down on an auto loan.
The Average Car Payment Is More Than $700: 4 Better Ways To Spend That Money.