When it’s time to buy a car, you’ll probably want to know: “How much car can I afford?” Financial experts answer this question by using a simple rule of thumb: Car buyers should spend no more than 10% of their take-home pay on a car loan payment and no more than 20% for total car expenses, which also includes things like gas, insurance, repairs and maintenance.

Here are three key steps to follow:

1. Calculate the car payment you can afford
You may wonder, “How much car can I afford based on salary?” Instead, you’ll want to base it off your take-home pay — the amount you make each month after taxes — to get a more accurate picture of your finances. NerdWallet recommends spending no more than 10% of your take-home pay on your monthly auto loan payment. So if your after-tax pay each month is $3,000, you could afford a $300 car payment.

2. Calculate the car loan amount you can afford
Now that you’ve calculated your affordable monthly car payment amount, you can get a sense of how much you can borrow. This will depend on several other factors, including:

• Your credit score, which will in part determine your annual percentage rate, or APR, on the loan.
Your loan term, or the number of months you have to pay off the loan.
• Whether you buy new or used. New car loans tend to have lower APRs.
• With a monthly payment, an estimated APR and loan term, the car affordability calculator works backward to determine the total loan amount you can afford.

3. Set a target purchase price
The total loan amount you can afford isn’t necessarily the price of the car you can afford. If you’re making a down payment or trading in your old car, you’ll be able to buy a higher-priced car, or borrow less money.

To get a more precise estimate, here’s a breakdown of the typical extra costs:
• Sales tax: Typically 5% to 10%, and may include state, county and local taxes.
• Registration fees: Estimate these fees by using your state’s department of motor vehicles site.
• Documentation fee: Typically ranges from $75 to $895, depending on your state.

Once you have your target purchase price, you can use an online car-shopping site to find different models listed by price.

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