The Costs of Car Ownership
An auto loan can take up a big chunk of your monthly budget, so make sure you have the right loan for you.
A decent vehicle is something most of us rely on every day, but it’s also something that can break a budget if you aren’t careful. Consider a few key aspects of car ownership to make your next vehicle purchase a smart one.
So, how much do you need to save for your next car? Saving up money depends on how much car you want to buy. Something shiny off the lot for $35,000? Or a well-used jalopy for $2,000? Maybe somewhere in between?
If you’re planning to get a loan to help finance your next vehicle purchase, the big question is really, “How much to spend?”
Think about your car purchase in terms of your salary or wages. What percentage of your monthly pay do you want to allocate to an auto loan payment? Financial advisors recommend that no more than 36% of your gross income go to debt, but this includes debt and obligations such as student loans, rent and credit card payments.
The 20/4/10 rule is a popular way to go:
- Pay 20% down payment
- Get a loan for 4 years or less
- 10% of your gross income max should go to your monthly payment
You need reliable transportation, but your vehicle is a depreciating asset so it’s sensible to make a conservative purchase for your budget.
And keep in mind, your vehicle costs more than just the sticker price. Remember you’ll need to pay for additional expenses such as:
- Maintenance and repairs
- Parking and tolls
Compensate for these added costs by:
- Choosing a fuel-efficient car
- Refraining from braking and accelerating quickly
- Using the right type of oil and getting it changed regularly
- Shopping around for the best insurance rate
- Checking for insurance discounts like good driver and organization affiliations