How Much Car Payment Can You Really Afford? (3 Simple Rules)

How much car payment can I afford?
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You might've heard of the 20/4/10 rule for car affordability, but this is my modified version (20/5/10). You don't have to take this advice, but I think it's a good start on how much your car payment should realistically be. Start with 20% down, don't exceed a 60 month loan and try to keep the monthly payment and car expenses below 10% of your net monthly income. So if you bring in $5,000 per month after taxes, then your car payment and added expenses should be about $500 per month (after 20% down). That's how I calculate car affordability.

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#honestfinance #carbuying

[celticwarrior]

Perfect timing! I've been looking to buy a car for a while. The used car maket is absolutely insane. Taking in to consideration your advice here, looks like I have to save more for my down payment and consider something older to fit the budget better. Thanks for the great information!

[chodkowski]

I stopped by cars. I’m waiting for when the 30 year or 360 month payments start. If I had that option then my payments would only be $191 a month with $37, 000 in interest. That I could afford. Now if they could only build a car that could last that long.

[jakes]

Generally speaking, as long as the interest rate is low (under 4.5%) and you intend to keep your car for 4-5 years before trading in, then a 72 month car loan isnt a bad financial decision.

Even before car values got crazy like they are now, most cars kept about 50-60% of their value after 5 years (though now it’s more like 75%). Car depreciation tends to level off after the first few years. 99% of the time you’re gonna have positive equity for your trade-in after 5 or even 4 years on a 72 month loan.

I do agree with putting at least 20% down and using 10% of your NET income as a guideline. Most articles base their calculations off of gross income for housing and car monthly expenses but that’s totally irrelevant. Net income like you said is the true logical way to compute what you can afford.

[daltonwilliams]

COVID and buying my car in 2019 prevents from ever being upside in my car loan.

[Kyleach]

Just got my car totaled. Truck in front of me, it's tire broke off and hit me head on. My car was paid off for the last 2 years and now I'm forced into a car payment again. This 10% rule leaves me with 236 dollars total to spend on a vehicle and it's associated costs. This just isn't possible. I feel trapped and with no options

[bingo]

What if you have a 84 month loan with a credit union at 2.8% interest? That’s an affordable deal!

[richardtausch]

I have a question. I'm looking to buy a Honda for 42K. I have great credit and all the cash but I would like to finance it and pay it off in a month. What I would like to do is put a huge down payment on my credit card and finance the rest and then pay off the card in one month (get the points rewards) and pay off the loan off after one month and owe nothing. What is the most a dealer would allow me to put down on a credit card and would you alter this plan? I don't want to owe anything after a month for some specific reasons.

[thewewguyt]

well you see my situation is kind of weird as i have a very low take home pay and i cant really see any car payment being less then 10% of my monthly take home net pay again my situation is complicated and one that i am not sure most people would fully understand very well. but yeah apart from somehow getting a better take home pay what would you recommend.

[OnyxVenator]

6% average interest? Jeez, that's why you max out your credit score asap! A good score can get you between 2-3% at most credit unions.

[poppyspitfire]

Acquiring a longer time to pay back your loan will lower your monthly payment, but unfortunately you’ll pay a lot more in interest!

[jonathandeuire]

20/4/10 rule still makes sense to me. Not 20/5/10

[chodkowski]

You’re better off buying a vehicle that you can live in with rents doubling and tripling every couple of years. Hopefully you won’t have to decide whether to keep the car or the apartment.

[chodkowski]

What he’s saying is if you don’t make $5, 000 a month don’t bother buying a new car. Today’s good cars start at $60, 000 and up. $32, 000 will only buy you a budget junk car.