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How much car can I afford?
Setting a budget before you shop keeps you from being talked into a payment that strains your finances. Here is a simple framework.
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The 20/4/10 rule
A popular guideline for car buyers:
- 20% down — put at least 20% of the price down.
- 4-year term — finance for no more than 48 months.
- 10% of income — keep total car costs (payment plus insurance) under 10% of your gross monthly income.
It is a rule of thumb, not a law — but it keeps most people out of trouble.
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Work backwards from a payment
Decide the monthly payment you are comfortable with, then use the auto loan calculator to find the price that fits. Adjust the down payment, term and APR until the payment lands where you want it.
Don't forget the other costs
The loan payment is only part of owning a car. Budget for insurance, fuel, maintenance, registration and taxes too. A cheaper car often means lower insurance and upkeep as well.
Find your price: set your target payment in the calculator and work backwards to a budget.
General information, not financial advice.