Is 600 a month a high car payment?
An affordable car payment would be one that doesn't exceed $600 a month, based on the rule of thumb that your car payment shouldn't be more than 15% of your take-home pay.
The average monthly car payment is now a record $733, according to Edmunds. And even if your monthly auto loan payments are around $500 per month, that still may be uncomfortably high. And that's before adding up the cost of maintenance, fuel, and auto insurance.
According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%.
For many Americans, the cost to finance a vehicle can be one of the biggest hits to their wallets each month outside of housing costs. According to Experian's third-quarter automotive finance report, drivers are spending over $700 and $500 each month for new and used vehicles, respectively.
Starting with the 1/10th guideline, created and pushed by Financial Samurai, this guideline states: buy a car in cash that costs less than 1/10th your gross annual pay. If you make $50,000 you should buy a car in cash worth $5000. If you make $100,000, the car you buy should be worth no more than $10,000.
In general, it's recommended to spend no more than 10% to 15% of your monthly take-home income on your car payment, and no more than 20% on your total vehicle expenses, including insurance and registration. Read on to learn how you can determine how much car you can afford based on your financial situation.
The average monthly car loan payment in the U.S. is $738 for new vehicles and $532 for used ones originated in the fourth quarter of 2023, according to credit reporting agency Experian. It's worth noting that some recent reports from other industry analysts place the average car payment even higher.
An affordable car payment would be one that doesn't exceed $600 a month, based on the rule of thumb that your car payment shouldn't be more than 15% of your take-home pay. If you take out a 60-month car loan at 8% APR, you should aim to take out a car loan of less than $30,000.
But no matter the reason for your $750 monthly car payment, the reality is that it's a lot of money. And if you're going from having no car payment to a payment of $750 a month, it could really constitute a shock to your finances. Here are a few steps you can take to cope with such a large car payment.
The 35% rule states that the most that you should spend. on the price of a car. is not to exceed 35% of your gross income. That means if you make $40,000 a year, the cars price should not exceed $14,000. If you make $80,000, the cars price should be below $28,000.
Is $900 too much for a car payment?
According to experts, a car payment is too high if the car payment is more than 30% of your total income. Remember, the car payment isn't your only car expense! Make sure to consider fuel and maintenance expenses. Make sure your car payment does not exceed 15%-20% of your total income.
For large luxury models, $1,000-plus payments are the norm. Even a handful of buyers with subcompact cars have four-figure payments, likely due to having shorter loan terms, poor credit, and still owing money on previous car loans, according to Edmunds analysts.
Experts say your total car expenses, including monthly payments, insurance, gas and maintenance, should be about 20 percent of your take-home monthly pay. For non-math wizards, like me – Let's say your monthly paycheck is $4,000. Then a safe estimate for car expenses is $800 per month.
As a general rule of thumb, many experts suggest following the 20/4/10 rule, which holds that you should set aside 20% of a car's purchase price for a downpayment, take 4 years to repay your car loan, and ensure that your monthly transportation costs don't exceed 10% of your monthly income.
If you make a $50,000 gross salary, after taxes (depending on where you live) your monthly take-home pay is roughly $3,230. Based on the 10% rule, you could afford, at most, a $323 monthly car payment. If you take out a 60 month (5 year) auto loan at 8% interest, you can afford a $17,000 car.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.
Your monthly car loan payment is largely affected by your loan amount, interest rate and loan term. Your credit, debt and income can play a key role in determining your overall loan cost, so it's important to know your current credit and take steps to improve it, if necessary.
The Fed has raised interest rates to cool the economy.
This means that you're spending more money on your monthly loan payments, since you're paying more in interest. With many of these auto loans starting at 6%, it's no secret as to why car payments are up.
Basically, the rule goes that you provide a down payment of 20% of the balance, sign a loan for a four-year period, and pay no more than 10% of your monthly income on car expenses. These expenses include any money you put towards your new vehicle, including gas, insurance, and loan payments.
About 43% of Americans take out loans to pay for their cars. The total amount of outstanding auto loans in the US exceeded $1.2 trillion in Q1 2020. In Q1 of 2020, the proportion of overall delinquent auto loans was 4.71%.
How many Americans are behind on car payments?
Recent data from Fitch Ratings found that 6.1% of subprime borrowers were delinquent, or at least 60 days past due, on their auto loan as of September — the highest share recorded by the credit rating agency since it first started tracking the figure in 1994.
Most families have two cars, so it's not unusual to need two car loans. But having two loans can put a strain on your budget. Before you apply for a second loan, make sure you can afford the monthly payment. Lenders only approve you if your income and debt can handle the added expense.
Loan Amount | Loan Term (Years) | Estimated Fixed Monthly Payment* |
---|---|---|
$15,000 | 3 | $463.09 |
$15,000 | 5 | $311.30 |
$20,000 | 3 | $617.45 |
$20,000 | 5 | $415.07 |
How much should I spend on a car if I make $60,000? If your gross salary is $60,000, your take-home monthly pay is probably around $3,750, assuming about 25% of your pay goes toward taxes and other expenses. Based on the 10-15% calculation, you should spend no more than $562.50 on a monthly car payment.
An interest rate under 5% is a great rate for a 72-month auto loan. However, the best loan offers are only available to borrowers who have the best credit scores and payment histories.
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