How much should I spend on a car payment given my financial situation?

Submitted by amanhasnoname54 t3_11ek5z0 in personalfinance

I [25M] recently bought a 2023 Honda Civic Sport Hatchback. After putting $3,500 down and selling my old car for $3,200, I currently have about $22,000 left on the loan at 5% interest, $400/month for 6 years.

My take-home is around $6,100 per month, and this is my first time having a car payment. I also have student loans and pay extra at $1000/month. After all my other expenses, I save around $1000/month.

I tried to think things through in terms of reliability, fun-to-drive-ability, gas mileage, etc before buying. And to be honest I kinda wanted to treat myself after driving a 2002 Camry around for 10 years.

However I'm not sure if I prioritized my desire to buy something nice over my desire to make this a good decision financially. Is my current monthly payment too high for someone in my salary range? I'm pretty frugal about most things, and feel like I gave into the classic "ooooo the car is so pretty" weakness.

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sonnyfab t1_jaeht9v wrote

You already bought the car. Had you come before buying your car, I would have advised a different decision, but your choice wasn't unreasonable. Don't spend too much time on buyers remorse.

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BouNcYToufU t1_jaewi1v wrote

yeah, 400/month, 5% interest. these aren't terms that are beyond your means. Also, it is for a new car from a reliable brand that will last you easily 7-10 years. Not the most pragmatic decision but sometimes you need to treat yourself. It sounds like you are doing that and it is within your means too.

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reality_junkie_xo t1_jaeu33e wrote

You're fine. As others have said, depending on the interest rates on the car vs student loans, it may make sense to pay more off towards the car if the interest rate is higher. You're still able to save $1000/month! Not many people can say that.

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iiTQ t1_jaei1af wrote

Honestly, I’m not a financial advisor, but I think you’re completely fine. I was in a similar situation a few years back and I haven’t had any issues. At a certain point, you do need to consider your happiness.

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TypicaIAnalysis t1_jaexvnb wrote

Pay 600 a month when you can and pay off the loan faster to save on interest then keep saving that amount once you are paid off. Then next time buy a car outright and save interest. You already wont be missing the money and its a great investment especially if you can find some competitive CD. This is the the best advice since you already purchased the car.

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Badroadrash101 t1_jaeqvxm wrote

You’re fine. Your loan is not crazy nor is impacting your financial status. 400/mo is not unreasonable. Relax and enjoy your car.

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Never-Dont-Give-Up t1_jaekn66 wrote

You take home about $305 / day. After expenses, about 2 days a month pays for the car. I know this is dangerous way to think about things, but it's a great way to justify things.

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Greenmantle22 t1_jaey1jo wrote

$6,100 / 31 = $197.

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Totuum t1_jaf3867 wrote

He divided $6100 by 20 since he likely works about 20 weekdays in a month.

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No_Loquat_183 t1_jaevro1 wrote

I don't know how much student loans you have left, but if your post tax pay is 6100 / month, I think this isn't a big deal. As long as you also have enough to max out your roth and at least match employer match at the very least, and have somewhat of an emergency fund, you seem good.

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mckrd0 t1_jaejkv9 wrote

My car payment is more than that and I make only 60k a year. If you’re still saving 1k a month, you’re fine. You can always cut back on the extra 1k to your student loans if you run into some issues. Enjoy the car :)

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atlantadessertsindex t1_jaenz0i wrote

People really comment in this sub giving advice to others despite making their own bad decisions lol.

Over 10% of your monthly take home is for a car? Yikes.

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UsernameSuggested t1_jaexh27 wrote

I mean, same and no regrets. I don't have expensive hobbies, other than that I like to drive. You can't take it all with you. :P But I also more than meet the prime directive, so...

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_Nuba_ t1_jaekhd8 wrote

You can afford it but it wasn’t the best decision you could have made. Life goes on. You should try to pay off the car sooner than 6 years, it depreciates and you don’t want to be underwater on the loan.

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gingitdu t1_jaemtr6 wrote

If I’m understanding your post correctly it sounds like you’re paying your student loan down an extra $1k a month? Depending on the terms of that debt maybe it would be better to pay the minimum on the student loan and extra on the car payment. If the interest is low on that student loan why rush to pay it off?

*most of my knowledge of finance comes from Reddit so please correct me if I’m wrong.

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[deleted] t1_jaeo5ls wrote

[deleted]

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geetarzrkool t1_jaexpxb wrote

An auto Lease is 5x worse than a regular payment.

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[deleted] t1_jaf0n5i wrote

[deleted]

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geetarzrkool t1_jaf2dhj wrote

Not a good idea to rely on the exception, rather than the rule when it comes to money ;) Either way, taking on "financing"/debt for a car is dumb and unnecessary for personal use. It does nothing, but lose value and cost money over time. A complete financial loss in every way. Unless you use them for business, where you can write of depreciation, etc..., they can't really be justified, and they're made like crap. When is the last time a week went by when a major auto manufacturer didn't have a recall, or fire, or debt spiral, etc....?

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Ragnarock14 t1_jaf2vir wrote

The only thing about your choice is that you bought new. It’s way more expensive then buying a two year old car. You gotta pay for insurance and gas now on top of your monthly budget. Insurance will be more for new then used. Looks like you got the cash for it tho.

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geetarzrkool t1_jaf1vm2 wrote

"I know nothing about money, BUT....." <--- Every commenter here.

Pro Tip: CAR PAYMENTS ARE A WASTE OF MONEY. Avoid them like the Plague.

"Treat Yo' Self!" is not the most sound financial advice one could give, or receive regarding this matter.

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geetarzrkool t1_jaf3lpu wrote

What happens if OP loses their job in 18 months? Not that it could ever happen in our amazing Global Economy, of course. Imagine being unemployed and underwater on a used Civic that you can't give away and still cover your Note.

"Pennywise and Pound foolish."

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geetarzrkool t1_jaf32m6 wrote

Please, if all you know about Personal Finance is from r/Personalfiance, stop posting.

Money is Math. There are no "emotions", "splurging" and "treating yo self", in the early days and if you really want to get ahead.

There is no scenario in which a multi-year car payment with INTEREST is "good"/"better" than paying for an equivalent car in Cash.

Get your emotions out of your money, or you will be broke forever.

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geetarzrkool t1_jaf2oqg wrote

As another poster mentioned you're going to spend $31,000 on a $22,000 car that will be worth $10k by the time it's "paid off".

But why?

Pro Tip: Learn Math! It can save you A LOT of money, which is handy when it comes to matters of "Personal Finance". No, really. It does. I promise.

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geetarzrkool t1_jaf3d4t wrote

This is not "Good Debt", in case anyone was going to try to play that card. It's a waste of money. OP will effectively pay $30,000 for a $10,000 car.

There's a reason Einstein said "Compound Interest is the 8th wonder of the world" ;)

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geetarzrkool t1_jaexjlk wrote

ZERO! Car payments are stupid and new car payments even more so. Cars are financial cancer. Buy the best you can in CASH and drive the wheels off of it. Never mind the fact that new cars are genuine garbage that are intentionally designed not to be serviceable by their owners (serialized parts, right to repair). Too late now, but don't do it again. Some of the wealthiest people you will ever meet are driving 15 year old Hondas ;)

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cattledogcatnip t1_jaehtti wrote

It still blows my mind that splurging on a depreciating asset is somehow “treating yourself.” The question in your title is moot since you’ve already purchased the car.

You didn’t mention how much your rent is or how much you have in emergency savings. 6 year car loans are notorious for putting you under water and you end up paying more interest. I personally would’ve kept the Camry and continued to save lots of money.

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amanhasnoname54 OP t1_jaelyow wrote

Rent is around $2000, and I have about $14,000 set aside in an emergency bank account.

Would you mind elaborating on the dangers of 6 year car loans? My interest rate is fixed.

As for the Camry, it had 300,000 miles on it. I have to take several cross-country drives a year to visit family so that was the main reason I felt it was time to upgrade.

As for the depreciation, yes I agree. However, I'd argue that well-kept Civics tend to depreciate less than most cars.

Either way, I'm happy with the car so yes, the title was rather badly worded.

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ElstoTD t1_jaeoblw wrote

First step is the emergency fund, which is done. Do you contribute to your retirement at all? Any house buying in the near future that you would need to continue saving for?

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atlantadessertsindex t1_jaenl10 wrote

You’re going to wind up paying $31,500 for the car once it’s all said and done. You could have gotten a cheaper car. Like others have said, it is what it is. You can probably afford it but you could have spent less and probably been just as happy.

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evantom34 t1_jaej8cf wrote

Lol I agree.

Go splurge on a ribeye steak and buy some VTI.

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