When is a Car Payment Too High?

January 11th, 2019 by

A new car payment. It’s not a subject you think about a lot, much less at all. But you’ve been thinking about upgrading your ride lately – especially after you saw that 2019 Corvette Stingray. The sight of it brought you back to the first time you saw a Corvette.

You and your dad were driving into town when you saw something low and sleek slide up next you at a stoplight. It was bright red and looked super fast. Eyes wider than dinner plates, you asked, “Dad…what’s that?”

“That,” your dad said with a smile, “Is a Corvette.” But as you think about finally getting your childhood dream car, you start to wonder about the car payment.

“Is that something I can afford? And when is a car payment too high, anyway?” If you want to know when a car payment is too high, read on.

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10% of your net pay should go towards your car payment.

car payment, payment calculatorWhen is a Car Payment Too High?

The General Rule

Before you rush over to take a spin, you should first see if it’s something you can afford. So how can you do that? By following the general rule.

According to Nerdwallet, your monthly payment shouldn’t be more than 10% of your net monthly take-home pay. So, if your monthly take-home is about $3,500 each month, then your car payment shouldn’t be more than $350.

“But that’s barely anything!” We hear you. 10% sure doesn’t sound like much. But don’t write off that red Corvette just yet. There is a way you might be able to snag that Stingray. Enter the 50-30-20 rule.

The Budgetcar payment, payment calculator

The 50-30-20 rule is a great way to get the car you want. So how does it work? We’ll break it down for you. All 50-30-20 means is that you’re splitting your net pay into three different categories.

  1. 50% of your net pay is for needs. These are the things you need to live, such as mortgage/rent payments, food, and transportation. Your car payment is part of this. Unless you’re living in a large city like New York, a car is your lifeline to the outside world. A car helps you get food, hold down a job, and pick up/drop off kids to places as needed.
  2. 30% of your net pay is for wants. These are things like going to the movies, out to dinner, or vacations. They are things you don’t need to live but are nice to have.
  3. 20% of your paycheck is for savings. These are things like paying off credit card debts and building a nest egg.

As we said above, car payments fall under the needs category. You need a car to get around.

So how can this budget plan help you slide into the driver’s seat of a 2019 Corvette Stingray? Simple. Just put part of your car payment into the wants category.

To help you visualize what we mean, let’s use Dan Cummins car payment calculator.

NOTE: The situation we’re about to describe is purely hypothetical. Please speak with a Dan Cummins specialist for your actual monthly payment. payment calculator, car payment

Split your car payment between your needs and wants budgets.

The Trick

car payments, payment calculatorSuppose your net pay is $3,500 a month. The price of a 2019 Corvette Stingray is about $55,000. You have about $5,000 saved for a down payment and the car your trading in is worth about $5,000 as well. Let’s also suppose that the Corvette will be your daily driver.

Your interest rate is average, say about 4.9% and you plan to finance it for 72 months.

According to Dan Cummins payment calculator, your monthly payment could be about $723.

Sounds scary, right? Now we’ll apply the budget trick. To do that, we’ll take the $723 and subtract $350. That $350 is 10% of your net pay and part of the needs budget. What you’re left with is $373.

That $373 will then be taken from your wants budget. What you’re basically doing is splitting the car payment between two budgets: the wants, and the needs.

Keeping the balance is what makes this work. This means you have to plan each month knowing $373 will come out of your wants budget. As long as you factor that into your finances, there’s no reason to restrict your car payments to 10% of your net pay. And with the Dan Cummins payment calculator, you’ll get a good estimate of what you might pay before you’re even on the lot.

Contact Dan Cummins to See What Your Car Payment is Today!

See how you can afford your dream car with Dan Cummins payment calculator. To find out which car meets your requirements, talk to our friendly staff. Leave a message or call us at 877-661-2805Click here to apply for auto financing and get pre-approved in seconds.

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When is a Car Payment Too High? | Dan Cummins Chevrolet & Buick – Louisville, KY