If you’re ever looking for a demonstration of the adage “it’s expensive to be poor,” look at buying a car. If you’ve got your eye on a car that costs $35,000 with all fees included, and you have $35,000 in your bank account, that’s what you pay for the car. If you don’t have the cash, let’s say you put down $5,000 and finance the remaining $30,000 with a five-year loan with a 6.9% annual percentage rate (APR). You’ll wind up paying $5,557.29 in interest—that means, including your down payment, your $35,000 car will run you $40,557.29.
What’s really incredible about that example is the fact that the monthly payment on that loan ($592.62) is actually pretty low these days. What used to be rent on a one bedroom apartment is now an attractive monthly payment for a car you don’t even own. A rising number of new car buyers are actually paying $1,000 a month for their rides, which is…a lot.
But is it too much? Buying a car is often a pressure-cooker experience with salespeople tossing numbers at you. Meanwhile, new car prices are at their highest point in history with an average price of $47,000 (up 12.6% in the past year)—and don’t even get us started on used car prices, which defy rational numbers. Most people have to finance their cars, but they often look at car loans the wrong way. So how much is too much for a monthly car payment?
Focus on total cost
Before we get into whether your monthly payment is too high, it should…
