How Much Should You Spend On A Car?

Spend On A Car
Spend On A Car

How Much Should You Spend On A Car?

Buy or sell any cars, maintenance is the key! Your job does not end with just paying the car’s price; its maintenance cost is something you should look forward to. Budgeting and financing for a car is a hard string to pull. So, here we are to help you out with options you can have on setting a budget for your car! 

  • The 36% Rule 
The rule of thumb for expenditure control is the 36% rule, which states that you should spend 36% of your income on your total debts, car debts included. In case your monthly income is $5000, the 36% of your income would be $1800. Then if you have to pay for a house, car, credit card and student loan, you are to spend $400 on your car care. 
In other words, your monthly debt should not exceed your pre- taxing earnings. If your debt increases, you can go bankrupt. Hence, while buying a car it is important to calculate its maintenance cost along with the debts you have already. This basic formula is practiced most commonly to manage financial needs. 
  • The 15% Rule 
In case you are in the savings lot, this rule is for you! Under this rule you will spend 15% of your gross income on debts instead of 36%. In this, the 15% of $5000 would be $750 out of which you can allocate accordingly to your debts. 
To practice this you need to calculate your total debt and see whether you can fulfill the required needs within the 15% of your gross income. 
  • The 20% Rule
If you’re neither in the spendthrift or the saving lot, this rule is just perfect for you! The 20% rule is the one in which you allocate 20% of your gross income to debts. In this, you not only have room to maintain your debts properly but also allow you to save a bit. You can buy a car that is cost effective but can also go little easy on spending a few dollars more than usual.
 If your income is $5000, then the 20% of it would be $1000. Accumulating all other debts, you can subtract that from the total of $1000 and know your budget for your car maintenance. 
  • The 20/4/10 Rule 
Buying a car on credit, paying for maintenance as well as car installments is quite a task. To balance such a scenario, the 20/4/10 is a best fit for you. Through this rule, you can come up with exactly what you can afford and know your limitations and budget accordingly. In this rule you have to determine that the car’s down payment is 20% of your budget while you finance it for no longer than four years. It elaborated that inclusive of insurance your car maintenance should not exceed 10% of your gross income. 
Through this way, your whole car budget is balanced with your gross income as well as your financial fulfillments. 
  • Half Your Annual Income 
While buying a new car, this rule is primarily suggested by financial experts. It is said to use half of your annual gross income on your car purchase. You can divide it accordingly for a purchase on credit as well. You can organise down payments and get a deal according to your requirements. In case your monthly income is $5000, then your annual income would be $60,000 out of which you can spend $30,000 on a car purchase. 
However, it is essential to look for car maintenance and insurance in future before you decide on buying a car. 
Having a set budget and having met your financial needs and requirements is a plus when buying, crediting or maintaining a car. Finding a good deal when knowing that the dealers acquire a commission or gain their own profit. Finding a good deal is relatively easier when you have done your own calculations. To find the best deals, do not forget to visit the CarSwitch website, a marketplace hub where you can sell any car in Dubai. Our aim is to give you the best deals, which are customer friendly! Used and new, all cars are in for you! 


Please enter your comment!
Please enter your name here