How Much Car Can I Afford

It’s essential to own a car in many parts of the United States, especially if you’re new to the country. 

Settling down can take time, and a car can provide freedom and hasten the process. Everyone needs a way to get to work or even the grocery store. If you love road trips, then you definitely need a car. But buying a car is a big event. For most of us, a car purchase is one of the biggest expenses we’ll ever make, second only to purchasing a home.

So, how do you go about getting a car as an immigrant in the United States? After you have done your research based on your state, the next step would be to plan how much car you can afford.

Planning Your Budget

“How much car can I afford?” is a common question many car shoppers ask themselves. 

Beyond knowing what type, brand, and car model you want, you first need to determine what you can comfortably afford. If you go into the car buying process with some key numbers, you will be more prepared to buy.

Determining affordability involves striking a balance between meeting your car needs and staying within your budget.

Car Payments

There’s no perfect formula for how much you can afford, but the general rule of thumb that most financial experts endorse is that your auto loan payment should fall between 10-15% of your pretax monthly income, and never exceed 20%.  

That might leave you feeling that your dream car is not insight. The idea between the 10-15% rule is that this range is more conservative. If you stay within these limits, you’re likely to make your budgeting easier. 

When life happens (and it always does), you will have enough money left over each month to cover day-to-day nonauto expenses, as well as the occasional financial curveball. 

While the 10-15% rule may not work for everyone, it’s a good starting point for finding a ballpark figure. This percentage is only meant to cover your car payment and not ongoing car-related expenses like insurance, fuel and maintenance. 

What About Automotive Expenses?

Many car shoppers forget to factor in other monthly costs related to car ownership when it comes to affordability.

These costs include:

Registration and Taxes

Registration is the certification you pay for your car’s state registration taxes and fees. How registration fees are calculated varies from one state to the other. While some states charge a flat fee, others base registration fees on factors such as the car’s weight, age, or current value. Luckily, many states offer online calculators to help you estimate vehicle registration fees.

Driver’s License Fees

You’ll have no problem getting a driver’s license if you legally reside in the US. To apply, go to your state’s Department of Motor Vehicle (DMV) website. If you’re an undocumented immigrant, 16 states will let you obtain a driver’s license Here. Once you get your DL, you will be required to pay a fee to renew your driver’s license every few years. This fee varies from state to state.

Parking Fees

It will also make sense to include this expense in your budget if you expect to pay for parking at work or elsewhere. 

Monthly Driving Gas

You may find it important to think about gas-mileage rating during your research phase. Gas costs vary considerably based on your location, driving habits, and chosen car. The EPA’s website lists fuel economy figures Here and annual fuel cost estimates for both new and second-hand cars.

Insurance

In the US, having auto insurance is not an option. It’s a requirement. Your insurance premiums will depend on factors like where you live, the make and model of the car you drive, your credit score, and your driving record. Recent immigrants are regarded as “new drivers,” which often leads to high insurance premiums. New drivers’ insurance is hard to predict, so do your homework to budget accordingly.

According to a QuoteWizard study of all 50 states Here and the District of Columbia, the average annual cost of minimum car insurance is $1044 (or $87 per month). Two cars that look alike to you might have totally different insurance costs. The best way to estimate your insurance payment could be is to get quotes from a few companies.  Your insurance agent should be able to provide insurance policy quotes for different car models. All other things being equal, the more luxurious the car, the steeper its insurance cost.

Service and Maintenance

This includes routine services like oil changes and brake pad replacement. According to a 2019 AAA study, drivers in the US spend an average of 94 cents per mile driven on maintenance and repair expenses. Of course, your car’s car age and brand will play a major role in these expenses. Old cars and luxury brands have unexpected maintenance and high repair costs.  Remember to check your car’s owner’s manual for manufacturer-specific maintenance recommendations.

We know this process can seem like a lot, but do not let it get you defeated. After you have that new car high, one of the worst feelings is realizing you have gotten yourself in over your head. Once you’ve landed on a budget you’re comfortable with; it is time to explore the best option to pay for or finance your vehicle.