How much car can I afford based on my salary?

How much car can I afford based on my salary? Most of us can probably manage without a car if we truly have to, but owning a car definitely makes life much easier, particularly when you have children. And owning a reliable car is ever better since breaking down on a regular basis is both expensive and inconvenient.

Whether you are currently car-less, or you are looking to trade in your old rust bucket for something a little more upmarket, deciding how much you can afford to pay for a new car is a very important consideration. It is also a good time to rationalize your wants and needs: whilst you might want a sporty little number with a V8 engine and a soft top, but you probably only need a cheap and economical car to get you from A to B.

Unless you are a cash buyer, buying a car almost always involves a finance arrangement, either made via the car dealer, or through a personal loan from your bank or another lender.

How much car can I afford based on my salary?

Taking out a loan or a finance agreement to buy a car is a big commitment. In most cases, you will be paying the loan back over at least three years, so you need to be absolutely certain you can afford the repayments before you start talking optional extras and paint colors. Draw up a list of your monthly outgoings such as mortgage, loans and credit commitments, utility bills, plus any regular payments including child support, and work out how much your disposable income is. This will help you decide how much you can afford to spend on a new car.

As soon as you have found the car you like, it is time to sit down with the sales person and talk figures. Once the price of any part-exchange vehicle or cash deposit has been deducted from the purchase price of the car, what is left will need to be structured into a finance package and the dealer will then offer you a monthly repayment schedule based on their interest rates.

However, owning a car is more than a simple monthly repayment. There are other costs you need to take into consideration before deciding whether (or not) you can afford to buy a new car, and these include fuel, road tax (or other taxes depending on which country you live in), insurance, and maintenance. All these extras can amount to a not inconsiderable figure, which might blow your budget out of the water.

Once you have a monthly repayment figure on the table, you can see how that fits in with your disposable income. Never be tempted to budget all your spare cash on a new car—this would leave you with no money for anything else and there is little point in having the flashiest car in the neighborhood if you cannot afford to buy a tin of beans for your dinner. So be realistic and only buy a car you can actually afford!

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