Car Shopping 101: How to Budget for Your New Car

Our finance department in Elgin will help you budget for a new car properly.
We make car shopping fun here at Biggers Mitsubishi.

Car shopping can be a fun and exciting time. But let’s face it—there are so many options out there that finding the right car often becomes more of a chore and less of an enjoyable experience. One of the ways to narrow down the playing field and make the task a bit less stressful is to categorize vehicles by starting price. Here is one way to correctly budget for your new car.

You likely began shopping with a number in your head corresponding to the monthly payments you are able to afford. Don’t stop with that number! Calculate the starting price of a vehicle in your price range.

Starting with your monthly payments, multiply that number by 36, 48, and 60 to represent the length in months of three standard auto loans. Add to that number the down payment you plan to make for the vehicle plus the value of your old vehicle if you plan on trading it.

From there, calculate between 12 and 20% for sales tax and other finance fees. Subtract that number from your previous balance to arrive at the approximate starting price you should consider for your new vehicle.

Here’s an example: Let’s pretend you planned to spend $250 each month on car payments. Multiply that by the months you’ll spend paying off the auto loan and you get $9,000, $12,000, and $15,000. Say your down payment is $2,500 and the value of your trade-in is $6,500; add both numbers to the monthly budget amount for a subtotal of $18,000, $21,000, and $24,000. Subtract 15% for estimated sales tax and financing ($2,700; $3,150; $3,600, respectively) and you are looking for a vehicle wearing a sticker price around $15,300, $17,850, or $20,400 depending on the length of your auto loan.

On a side note: That puts you in the perfect price range for Mitsubishi’s 2015 Mirage with a 60-month loan.

Of course, there are websites like Cars.com that will calculate the starting price of a vehicle within your budget for you, but we at Biggers Mitsubishi hope this gives insight into from where that number comes.