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We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
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At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
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Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. How much car you can afford depends on factors like your monthly income, your credit score and how many add-ons you want to include in your purchase. Experts typically recommend spending no more than 20 percent of take-home pay on a car — including the cost of car payments, fuel, insurance and more. Determining affordability requires finding a balance between meeting your vehicle needs and staying within your budget. Get an initial figure by using a car loan calculator
The interest rate you receive on an auto loan plays a big part in calculating your monthly payment amount. A higher credit score will score you a lower interest rate, which will ultimately lower your monthly payment and your total overall loan cost. You can use a car loan calculator to determine how different interest rates will affect your monthly payment. Here is how: Pull a copy of your credit report and find out your . Get prequalified with a few lenders to determine the average interest rate you could be offered. Plug in your interest rate, desired repayment term length and car price to the calculator. The loan term is the second factor you should consider. A shorter loan term means bigger payments, but less interest paid overall. So, while a long loan term can be tempting, it may be better to go with a less expensive vehicle to keep payments affordable. Calculator Bankrate insight Use a cost-to-own tool
Beyond monthly payment, you should consider if you can afford to maintain the vehicle. Get a few and use a cost-to-own tool to see estimates of what you might pay. Both Edmunds and Kelley Blue Book have cost-to-own tools that take into account expected fuel costs, maintenance, repairs and state fees — along with average depreciation. By comparing cars like this, you can check the long-term affordability of a vehicle before you finance it. Three more factors to consider
1 Your salary
Your salary is the primary factor in determining which car and auto loan is best for you. that a new-car payment should be no more than 15 percent of your take-home pay each month. A used-car payment should be no more than 10 percent, but that number varies by expert. When insurance, fuel and other regular monthly expenses are included, the cost should not exceed 20 percent of your monthly take-home pay. Your income also matters if you are trying to get approved for a loan. Lenders will look at your debt-to-income ratio, or . This measure compares your monthly bills to your gross monthly income. Most car dealers like to see a DTI no higher than 45 or 50 percent before approving a loan, according to . Even if you have the cash available to pay for your car outright, you should still consider your purchase in the full context of your annual salary and expenses. Specifically, weigh buying something in cash — and possibly eating into or wiping out your — versus paying for something affordably over time. 2 Additional vehicle costs
When it comes to affordability, factor in other monthly costs related to car ownership. Two of the largest additional costs that come with car ownership are fuel and insurance costs. You can use to search for mileage estimates for your car of choice. Selecting a car with good gas mileage will save you money each month and could help you maximize any employer mileage reimbursements. Insurance costs also vary by vehicle and individual. Two cars that look similar to you might be vastly different to your insurance company. A is a great place to start understanding what your potential insurance costs will be and what factors the insurance company will consider when developing their price quote. Typically, companies will evaluate: Your driving record. How much you use your car. Your location. Your age. Your gender. Your credit. The type and amount of coverage you selected. The discounts you qualify for. Depending on the state you live in, there may be restrictions on what when pricing your auto insurance. 3 Leasing versus buying
Understanding the financial implications of is a helpful consideration when deciding how much you can afford to spend. Leasing is a great option for drivers who want a lower monthly payment and the ability to drive the newest model cars. It can keep your month-to-month costs affordable, and you only pay for a portion of total depreciation. However, you still need to put money down — and costs of repairs and maintenance will be on your shoulders for a car you ultimately will not own. Buying places you fully in the driver’s seat with none of the mileage limits or additional charges for potential wear and tear that are typically associated with leases. It will cost more to buy a car than to lease it, and you will need to ensure depreciation won’t leave you upside-down on a loan. But overall, you will own the car and be able to sell it if needed. Take advantage of a to calculate your potential savings. What is affordable comes down to how you plan to use your vehicle, so read up on the full benefits and drawbacks of each before you commit. The bottom line
Being realistic with your budget will ensure that you won’t have to pinch pennies once you bring your new ride home. Before settling on a car, consider all of the potential costs, not just monthly payment. When calculating all of the expenses, aim to find a car that costs no more than 20 percent of your take home pay. The goal is to find a car that meets your expectations and allows you enough breathing room financially to accommodate any unforeseen costs or reduced income. Learn more
SHARE: Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans.