How Much Car Can I Actually Afford?
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So, you’re in the market for a new car, or perhaps you’ve already made a purchase and are wondering if it was a sound financial decision. While you can’t change the past, you can certainly learn from your mistakes to make better choices in the future. In this article, we’ll explore some of the most widely recognized car financing guidelines, illustrate them with real-income examples, and discuss the common shortcomings in these guidelines, among other things. Let’s dive into the world of car buying!
20/4/10
The first guideline of car buying we’ll look at is called the 20/4/10 guideline. This guideline seems to be the most popular guideline among financial experts. This guideline says you can afford a car if you meet the following 3 requirements:
- Your can put 20% of the purchase price as a downpayment.
- You finance the car for no more than 4 years.
- Your monthly expenses for the vehicle — including loan payment, insurance, gas, maintenance, registration, and annual emissions check) are less than 10% of your gross monthly income.
💡The 20/4/10 guideline is most suitable if you have a good downpayment and are comfortable with manageable car debt for up to 4 years.
