Consumer talk: How much is too much?

So you’re in the market for another vehicle or a better vehicle than your current one. There’s no shame in wanting to continuously improve or “trade up”. However, let’s talk about where the line in the sand is drawn. Typically there’s always a limit in mind and usually based on the amount we put in our pockets, I’ll be talking about values versus income and other miscellaneous factors such as down payments, living circumstances and trade-in.

All loans will be based on a most commonly seen 60-72 month term (since 2014 anyways). You should grab a snack and/or beverage, this may take a bit…

The current typical rule of thumb: 10/20/30 percent of annual income.

This is the typical rule of thumb put in place to the everyday person that have other priorities than cars. However, most enthusiasts would think this rule is ludicrous! Cars are their life! Let me place some examples with a median annual household income of $59,039 (US average median as of September 2017):

  1. 10% – Sort of a “fixer upper” or even a “hoopty” in most cases but sometimes you’ll be lucky to find something decent. This is more of a “point A to point B” selection and a smaller type of budget. Also a good option for a long-term project if you’re willing AND able.
  2. 20% – This is more of a realistic daily driver budget. Something lower mileage and won’t necessarily require a whole lot of overdue maintenance. Won’t break the bank either.
  3. 30% – More common price point for a new economic vehicle or a very reliable used vehicle. This percentage would be more ideal for really anyone. In a number of cases, this works well with even enthusiasts too.

Let’s face it, we auto enthusiasts always yearn for more! So how much is too much?


A car enthusiasts standard?: 30/40/50

The life of the auto enthusiast is hard and some may call it a curse, but it’s our way of life. You can say most of us justify it by saying it’s our hobby, interests, and everything else rolled into one expense. While that may be true for the most part, sometimes overdoing it can end in tragedy. Here are some examples with the same average annual household income of $59,039:

  • 30% – A good price point for any enthusiast. It fits the bill for something used but easily driver focused.
  • 40% – Something more preferred by a typical enthusiast… newer, powerful. This range seems to mostly fit at any income or budget.
  • 50% – The threshold of playing it safe and going over your head. Anything more than this is giving up a lot. This is a territory we don’t recommend for anyone with children and a mortgage unless 50% is of a much higher annual income (eg: think six figures). This amount will however guarantee something exciting and least amount of compromise.

Image result for but wait there's more meme

There are several other factors to think about here that every other car shopping advisor likes to leave out.

  • The value of a current vehicle you’d like to sell or trade-in

    • It is unwise to trade in a vehicle you are “upside down” on (loan is more than car is worth)
    • Ideally, you will want to wait until your vehicle is paid off and even wait a few months to be without a car payment
      • Without a car payment, some decide to simply stick with their car longer so they don’t have the monthly payments. Give this method a try, and you might feel the same way. Plus, it will give you time to add more cash into your next goal purchase.
    • I would highly recommend selling your vehicle privately, this could be the difference of thousands. For example: While a dealership may offer you $8,000 for your car, you may be able to sell it privately for $12,000. See what you can sell it for and it will place you in a better buying position for your next car.
      • You should do some research before selling a car privately. Make sure you have a bill of sale in place with both signatures, dates and maybe even the last four numbers of both parties social security number, or a copy of each others drivers license for extra measure.
    • Whether you decide to trade in or sell privately, this amount of money you can consider stacked on top of your overall cost of the next vehicle in your budget
  • Amount of your down payment

    • This also could be applied to your trade-in, but it is preferred to have $3,000-$5,000 or more along with your trade in to put a dent in the added expenses (destination charges, taxes, etc.)
    • If you have no trade in, the magic number is at least $5,000 as a down payment. Anything less won’t put a good enough dent. Anything over $15-20,000 down payment is a waste. There is no point to spending this much as a down payment just to spend the remainder with interest. Be patient and skip the bank. Buy it out-right!
  • Current living conditions

    • Cost of living is a major factor when financing a vehicle of your choice, if you prefer the finer things in life and spend 50% or more of your annual income on your rent/mortgage, you should probably stop reading this all together and really start budgeting… but then again you are also reading this.
    • If you’re a parent, I would recommend to follow a minimum standard of decreasing your budget by 5-10% per child depending on your actual income. Maybe your income is less than average? no shame, be smart, budget, save.
    • Raise, Promotion or Bonus in your near future? You can calculate that in the cost, but don’t take this to the bank or you might find yourself taking it to your bankruptcy and/or repossession
  • Credit score, interest rate is everything

    • 0-1% makes a world of difference from 7-10% interest, repair your credit before making any rash decisions. You may find yourself overpaying by a long shot.
  • Insurance

    • Call your insurance company, give them a list of vehicles you would love to buy (make the list as long as you want). The insurance company will give you quotes for all. I have put this to the test and have found some to be cheaper than others, and in some cases, cheaper than my current vehicle.
      • For example: A C7 corvette insurance rate quote was cheaper than an SRT Challenger quote.
      • Also keep in mind that insurance quotes vary person to person based on area you live in, vehicle, driving record, etc.



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You can still shoot for the moon and play it safe all at the same time. Stay well below 50% of your annual income for your next car note to enjoy those creature comforts or performance you crave. These rule of thumb scenarios probably don’t apply to everyone. Annual income varies person to person as do living situations. Obviously the more you make, the more you can sacrifice. If you’re in a multiple 6 figure salary range and don’t care, chances are that you can go well above the 50% threshold without breaking the bank. I chose the average household income in the USA as a good medium point that could likely apply to majority.

I can safely say the magic number for all car enthusiasts is a range of 30-40%



Thoughts from the other side of the coin:

In the end, a car note isn’t always your gateway to a great car. Some of us can be patient, if you’re one of those people that can save overtime, then we highly recommend you do that to buy your goal purchase in the future. It’s better to spend on a car you really want “out right” than to ask for a bank loan and spend thousands more in the end. So go ahead, save up… maybe even invest it for the longer term for something really nice? As Warren Buffet once said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.“.


What do you think, have a good percentage you’d like to share? or have your own good or bad experience with a new car note? Let us know in the comments! Thanks for reading.

Images: Main, img 1, img 2, img 3, img 4

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