# How Much Car Can I Afford?

Total Monthly Budget: \$

Max Affordable Car Price: \$

Determining how much car you can afford is an important step in making a sound financial decision. There are several factors to consider, including your income, expenses, debt, and credit score.

## Concepts

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Education Quiz

1 / 10

What is the basic unit of life?

2 / 10

What is the name of the standardized test used for college admissions in the United States?

3 / 10

Dianne has the above-average mental ability, but she is poorly motivated in class. That is why she has low grades in her academic performance. Is she?

4 / 10

What is the study of languages called?

5 / 10

What is GPA used for?

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Which of the following is NOT one of the Seven Wonders of the Ancient World?

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Which of the following is a type of visual art?

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GPA is considered important as it is required for taking admission into theย Bachelor's and Master's degree programme. State true or false.

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Who painted the famous artwork โThe Starry Nightโ?

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What is the name of the first university established in the world?

### 25/36 rule

The 25/36 rule states that your monthly car payment should not exceed 25% of your monthly after-tax income and your total monthly transportation costs (including car payment, insurance, gas, and maintenance) should not exceed 36% of your monthly after-tax income.

### 20/4/10 rule

The 20/4/10 rule states that your down payment should be at least 20% of the purchase price, your loan term should be no more than 4 years, and your monthly car payment should be no more than 10% of your monthly net income.

## Formulae

There is no one-size-fits-all answer to how much car you can afford. However, there are a few simple formulae that can help you get started:

### Calculate your monthly after-tax income

This is the amount of money you have left over after taxes are taken out of your paycheck.

### Calculate your monthly debt payments

This includes your credit card payments, student loan payments, and any other monthly debt payments.

### Calculate your monthly transportation costs

This includes your car payment, insurance, gas, and maintenance.

## Benefits

There are several benefits to determining how much car you can afford before you start shopping:

• It can help you to qualify for a loan with a good interest rate.
• It can help you to avoid financial problems in the future.

## Interesting Facts

• The average monthly car payment in the United States is \$728.
• The average American household spends 18% of its income on transportation.
• The average American has a car loan balance of \$19,273.
• The average American keeps their car for 11.9 years.

## Use Cases

Determining how much car you can afford is important for making a sound financial decision. Here are some use cases where this information would be helpful:

• If youโre planning on buying a new or used car.
• If youโre considering leasing a car.
• If youโre thinking about refinancing an existing car loan.

## References

• Financial Mathematics: An Introduction by Irvin H. Siegel and John W.ย Van Horne (2013)
• Investments by Zvi Bodie, Alex Kane, and Alan J.ย Millerron (2018)
• Corporate Finance by Richard Brealey, Stewart Myers, and Frank Allen (2016)
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