: Some experts, like those at Edmunds , suggest your car payment alone should not exceed 15% of your take-home pay . Key Components of Auto Debt
: The actual amount of money you borrow to buy the car after your down payment.
Financial experts use different "rules of thumb" to define manageable auto debt: auto debt
: This conservative approach suggests you put 20% down , finance for no more than 3 years , and keep your monthly payment at or below 8% of your gross income .
: A more common guideline recommending a 20% down payment , a 4-year loan term , and a total transportation cost (including insurance and maintenance) of no more than 10% of your gross income . : Some experts, like those at Edmunds ,
: The cost of borrowing that money, which is typically calculated daily based on your remaining balance.
The "proper" piece of auto debt for your budget is generally considered to be a monthly payment between , depending on which financial guideline you follow. Affordability Guidelines : A more common guideline recommending a 20%
: The length of time you have to pay back the loan. While longer terms (e.g., 72 or 84 months) lower your monthly payment, they significantly increase the total interest you pay over time. Strategic Debt Management How Do Car Loans Work? - Bank of America