Buying a Car? Use the 20% Rule to Avoid Getting In Over Your Head

When you jump online to search for your next car, it’s important to estimate the true cost of that car. Your monthly car payment is only a portion of your overall vehicle costs so before you get caught up in the excitement, stay centered and read on.

You never want to just “wing it” at the dealership. At Exit5 Auto Group in Latham we know that buying a car can be an emotional experience. For some people, it’s a milestone. Your brain changes during these emotional times and if you’re not careful, you can get in over your head without knowing it.

Remember, buying a car is a transaction. If you take a few minutes to understand some key figures, you will save hundreds, maybe thousands, of dollars in the long run. You’ll also be more confident about your purchase once you’re in the dealership environment.

Who wouldn’t like to have the upper hand when buying a car, right?

Calculate the TOTAL cost to own your next vehicle and you’ll be better prepared when you visit the dealership. Here’s how.

Your monthly payment is important but it’s not the only expense you’ll have with owning a car. Factor in these costs to determine the total cost:

  • Car insurance
  • Yearly registration fees
  • Gas
  • Vehicle maintenance and repairs
  • Depreciation
  • Parking fees and tolls

Once you’re aware of all these extras, your true budget will become clear.

Like so many things, it’s easiest to view it on a monthly basis. And there’s a rule to help with that.


The 20% Rule

Financial experts recommend your monthly car expenses should not exceed 20% of your take-home pay.

Example of the 20% rule:

If your monthly take-home pay is $3,000, your total vehicle expenses should not exceed $600.

Realistically speaking, your car payment should be about $350, leaving $250 for other car-related expenses.

This may seem restrictive and it’s just a guideline. You can spend more than 20% but keep in mind that you’ll need to make up the difference by economizing somewhere else.

At Exit5 Auto Group in Latham we’re here to help you choose the right car for your needs at the right price. Contact us at 518-541-5000.

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