In the market for a new or used vehicle? Finding out how much financing you need to get the vehicle you want can seem like rocket science. But, with a little help from Davis CDJR, it's easier than you might think! Use the calculations below to determine how much financing you can afford.

Determining Your Monthly Vehicle Financing Expenses

After determining which vehicle you want to purchase from David CDJR in Yulee, FL, the question inevitably becomes how much financing do I need? Most of the time, with an acceptable credit score, dealers, banks, and finance companies will offer to fund the entire amount of your vehicle purchase. Though this may be the easy answer, it is seldom the right one.   
 
For most Americans on a budget, about 20% of monthly expenses (car payment + fuel and insurance expense = 20% of monthly take home pay) is most often used to determine how much financing you can afford.  

Monthly Fuel Expense

First, figure how much you will spend on fuel in a month. Do this by determining how many miles you put on your current vehicle annually. Then, Google the combined EPA miles per gallon (MPG) rating for the vehicle you want to buy. Divide your current annual miles by that EPA MPG figure to get your annual fuel usage in gallons.    

  • Annual Miles ÷ EPA combined MPG Rating = Gallons of Fuel Used per Year   
Multiply that answer by the current price of gas. This will give you a solid average annual fuel expense.    

  • Gallons of Fuel Used per Year  x  Current Fuel per Gallon Price = Annual Fuel Expense    
Then, divide that annual fuel expense by 12 to get your monthly fuel expense.
    
  • Annual Fuel Expense  ÷  12 = Monthly Fuel Expense   

Monthly Vehicle Insurance Expense

Next, call your insurance agent and tell them you are considering buying another vehicle. Tell them what vehicles you're interested in. It wouldn't hurt to call a couple of different agents to bid for your business. You might be surprised what you find. Armed with that information, you should have a pretty good estimate of your annual and monthly insurance expense.   

When you add your monthly fuel and insurance expenses, this is your monthly car expense without your finance payment.    

  • Monthly Fuel Expense + Monthly Insurance Expense = Fuel & Insurance Expense  

Monthly Take-Home Pay Information for Financing Affordability

Now, determine your monthly take-home pay. To do this, take your pay stubs from your most recent month and add the net pay amounts which constitute a month of pay.  

How Much Financing You Can Afford

Next, multiply your monthly take-home pay amount by 20% (.20) to get the portion of your take-home pay that you should be able to comfortably devote to your vehicle expenses. This is how much you can finance.    

  • Net (take-home) pay  x  .20 = Monthly Vehicle Expense Budget    
Subtract your Non-Finance Vehicle Expense from the above amount to determine how much financing you can afford.    

  • Monthly Vehicle Expense Budget  -  Fuel & Insurance Expense = Financing You're Able to Afford   

Additional Factors That Affect Financing Affordability

Interest rates are determined by the market interest rate and your creditworthiness, using your FICO credit score. The importance of the interest rate you accept cannot be underestimated. Because the interest rate charged factors significantly into your monthly payment, shopping for a better rate will make certain that you keep your monthly interest rate expense as low as possible.   

The size of down payment also has an important effect on your monthly vehicle expenses. The larger the down payment, the smaller the monthly payment. Consider increasing your down payment, if your monthly payment exceeds what you budgeted for.  

Davis CDJR Makes Financing Easy and Affordable

  

Although there's some math homework involved, figuring out how much financing you can afford will give you confidence when it's time to sign the finance contract. More importantly, it will ensure that buying your next vehicle won't multiply your finance-induced headaches.   

At Davis CDJR of Yulee, FL, we can get you financed and into the car or truck of your dreams easier and more affordably than you can imagine. We'll help keep your monthly payment low so you can afford the best vehicle possible.    


 


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