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Financial experts advise spending no more than 10% of your monthly take-home pay on your car payment and no more than 15% of your total car costs, which include gas, insurance, and maintenance in addition to the payment.
If that leaves you feeling you can afford only a beat-up jalopy, don’t despair. You can gain flexibility with your car payment using a balanced budget approach. Here’s how it works.
Take some time to figure out the highest car payment that fits within your budget before heading to the dealership or beginning your online car search.
The question of whether a $600 car payment is too much is a complex one, with no single answer that applies to everyone. It depends on a variety of factors, including your income, expenses, debt, credit score, and the type of car you’re considering. However, by carefully analyzing your financial situation and considering the long-term implications, you can make an informed decision about whether a $600 car payment is right for you.
Factors to Consider:
- Income: Your income is the most important factor to consider when determining whether a $600 car payment is affordable. Ideally, your car payment should not exceed 10% of your gross monthly income. For example, if your gross monthly income is $6,000, a $600 car payment would be within the recommended range. However, if your income is lower, a $600 car payment could significantly strain your budget.
- Expenses: In addition to your income, you need to consider your monthly expenses. This includes housing costs, food, utilities, debt payments, and any other regular expenses you have. If your expenses are already high, adding a $600 car payment could make it difficult to make ends meet.
- Debt: If you have a lot of debt, adding a $600 car payment could make it even harder to manage your finances. It’s important to prioritize paying off high-interest debt before taking on new debt, such as a car loan.
- Credit Score: Your credit score is a major factor in determining the interest rate you’ll receive on a car loan. A higher credit score will qualify you for a lower interest rate, which can save you money over the life of the loan. If you have a low credit score, you may want to consider improving it before taking out a car loan.
- Type of Car: The type of car you’re considering will also affect the affordability of a $600 car payment. A more expensive car will typically have a higher monthly payment than a less expensive car.
Additional Considerations:
- Down Payment: Making a larger down payment can help reduce your monthly car payment. Even a small down payment can make a significant difference.
- Loan Term: The length of your loan term will also affect your monthly payment. A shorter loan term will result in a higher monthly payment, but you’ll pay less interest over the life of the loan. A longer loan term will result in a lower monthly payment, but you’ll pay more interest over the life of the loan.
- Interest Rate: The interest rate on your car loan is a major factor in determining your monthly payment. A lower interest rate will result in a lower monthly payment.
Making an Informed Decision:
To make an informed decision about whether a $600 car payment is right for you it’s important to carefully analyze your financial situation. Consider all of the factors listed above and create a budget that includes your estimated car payment. If you can comfortably afford a $600 car payment without sacrificing other important expenses, then it may be a good option for you. However, if a $600 car payment would strain your budget, you may want to consider a less expensive car or waiting until you can afford a higher down payment.
Additional Resources:
- NerdWallet’s Auto Loan Calculator: https://www.nerdwallet.com/article/loans/auto-loans/auto-loan-calculator
- Quora Discussion on Car Payments: https://www.quora.com/Is-a-600-car-payment-too-much
- Bankrate’s Guide to Car Loans: https://www.bankrate.com/loans/auto-loans/
Remember, the decision of whether or not a $600 car payment is too much is a personal one By carefully considering your financial situation and the factors listed above, you can make an informed decision that is right for you.
How do lenders determine a car payment?
Several factors contribute to the amount of your car payment.
- The loan amount.
- The length of the loan.
- The interest rate plus any lender fees are included in the annual percentage rate, or APR.
Sticking to a maximum car payment amount can be beneficial when haggling at a dealership. However, exercise caution if a dealer pushes you to take out a longer loan term in order to lower your monthly car payment. If you take out a longer loan, you may end up paying a lot more interest overall. For used cars, NerdWallet normally advises loans of no more than 36 months, and for new cars, no more than 60 months, though this may be more challenging in the current market.
You run the risk of wasting a lot of money if you just consider the monthly car payment and neglect the overall cost of financing. For example, look at how two different loans can result in the same car payment.
|
Monthly payment |
Loan amount |
APR |
Term |
Total interest |
|---|---|---|---|---|
|
$530 |
$22,318 |
6.57% |
48 months |
$3,122 |
|
$530 |
$28,804 |
9.75% |
72 months |
$9,356 |
The interest rate on your auto loan also affects your car payment. Your credit score is one of the factors that determines the interest rate you pay on a loan; lower credit scores typically translate into higher rates. However, rates differ between lenders, so it’s a good idea to compare rates to get the best deal on your auto loan. It’s crucial if you require an auto loan for bad credit because these loans typically have the highest interest rates.
You can use NerdWallet’s auto loan calculator to compare various rates and terms.
Set your car payment budget
NerdWallet recommends using the 50/30/20 rule when setting your overall budget. To do this, divide your take-home pay into three general spending categories:
- 50% for necessities like housing, food, and transportation 20%E2%80%94%, which in this instance is your monthly car payment and associated auto expenses
- Thirty percent for wants like travel, entertainment, and other non-essential items
- 20% is allocated for savings, credit card repayment, and long-term financial goals.
A monthly auto loan payment typically falls into the “needs” category. If you’re purchasing a car, it’s probably necessary for you to get to work or drop the kids off at school.
However, the balanced budget approach can provide flexibility. If you share housing expenses with a roommate, for instance, you may have more money set aside in the “needs” category for a car payment. Alternatively, you could classify a portion of your monthly payment as “wants” spending if you’d like a more expensive car.
The key is keeping the budget balanced overall. If you intend to make certain financial cuts, you could decide to allocate a larger portion of your take-home pay—more than 10% of it—to a car payment.
You can go back to what you can afford to spend on a car once you know how much your car payment should be. NerdWallet’s car affordability calculator lets you start with a monthly car payment to estimate a realistic car price.
I Make $2,000 a Month And I Have a $600 Car Payment
What if my car payment is too expensive?
Consider the following options to take if your vehicle payment is too expensive. Refinance your loan: Refinancing your vehicle loan is taking out a new loan to replace your current one, but with rates and terms that better fit your budget. It’s smart to calculate potential savings ahead of time to find one that best suits your needs.
Should you focus on a monthly car payment?
If you focus only on the monthly car payment and ignore total financing costs, you could waste a lot of money. For example, look at how two different loans can result in the same car payment. The interest rate on your auto loan also affects your car payment.
How much should a car loan payment be?
If you are trying to avoid monthly payments in the thousands and want a better grasp on your finances this year, consider how your auto loan payment fits into your budget. According to Karen Bennett, senior consumer banking reporter at Bankrate, your vehicle monthly payment should not exceed 10 to 15 percent of your pre-tax take-home salary.
How much money should you spend on a car?
As a rule of thumb, never spend more than 35% of your gross annual income on a car. The following calculator allows you to see enter variables, including down payment, interest rate, and loan term to compare a monthly payment to what’s affordable. Note that this calculator does not work for leasing.