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How Much You Should Pay for a New Car

Lisett Comai-Legrand

Lisett Comai-Legrand About The Author

Oct 29, 2019, 7:06:00 AM

Are you wondering how much you should pay for a new car? No article can tell you how much you can afford but there are a few things to keep in mind before you buy your next car. 

Keep Total Transportation Expenses Below 25% of Your Take-Home Pay

A rule of thumb is that your total transportation expenses should not exceed 20%-25% of your monthly net income. For example, for someone making $2,500 per month (after taxes), that equates to about $625 per month for total transportation expenses. Broken down, that could look like:

  • Vehicle payment-$450
  • Gas-$100 ($25 per week)
  • Insurance-$80 per month ($960 annually)
  • Maintenance-quarterly oil changes at $30 each.

When most people buy a car, they tend to only consider the monthly car payments.

Look at More Than The Sticker Price

Besides the sticker price, here are some other items to consider when making a car expense budget:

  • What are the insurance costs?
  • Do you have to make a down payment or can you trade in your old vehicle?
  • What about annual license plate fees?
  • How is the car rated on reliability? What is the chance that you'll have to make repairs every year?
  • Does your new car have different gas mileage than your previous one? If so, will your fuel costs increase or decrease?

cars lined up at a dealership

Add all of the monthly costs and then you will see your total transportation costs. And remember, just because the dealer may offer you a lower monthly payment doesn't mean that it's a better deal. Your payment may be lower because they offered you a loan with a longer term. These loans can have even higher interest rates so you'll pay a lot more in the long run.


Used Car Buying Inspection Checklist | First Alliance Credit Union MN | Vehicle Loans

These helpful car buying tips are courtesy from our friends at GreenPath Financial Wellness.