How to Budget for a New Vehicle in Springfield, MO

At Thompson Sales, we understand that buying a new car, truck, or SUV takes time and effort. It can be an exhilarating and stressful process as you navigate what type of vehicle you want, the features you love, and how long you want to drive it.

Purchasing a new vehicle is also a significant financial decision that requires careful planning. We’re here to make it easier with a complete guide to budgeting for a new vehicle in Springfield, MO, ahead of shopping for one.

Table of Contents

1. How Much Should You Spend on a New Vehicle?
2. Figuring Your Available Income
3. Calculating Auto Loan Payments
4. How to Secure an Auto Loan 
5. Making a Down Payment for Your Auto Loan

How Much Should You Spend on a New Vehicle?

Financial experts say to spend no more than 15 percent of your monthly take-home pay on an auto loan payment for a new vehicle in Springfield, MO, and elsewhere. Plan on spending no more than 20% of the total, including the costs of refueling and repairs. 

Here’s a structured approach to help you figure out the right amount to spend:

1. Assess Your Financial Situation

Evaluate your monthly income and essential expenses. Your car payment should be manageable within your overall budget without compromising other financial responsibilities, like a house payment, utilities, and more.

Ideally, your total vehicle-related expenses (including loan payments, insurance, maintenance, and fuel) should not exceed 15 to 20% of your take-home pay. For example, if you bring home $5,000 a month, your total car-related expenses should stay within $750 to $1,000 monthly.

Consider beefing up your emergency fund in place before committing to a car purchase. This fund should cover 3 to 6 months of expenses and is essential for financial stability in case of a sudden job loss or a negative change in your financial situation.

Review Your Credit History

Your credit score affects the interest rate on your loan. A higher credit score typically means a lower interest rate, which can reduce your monthly payments and total loan costs. Check your credit report and, if necessary, improve your credit score before applying for a loan.

You can improve your credit score by reducing the amount of debt you owe, making monthly payments on time, and making payments on your credit cards that are more than just the minimum payment amount.

2. Calculate the Total Cost of Ownership

The largest monthly payment you need to make is the car payment for your auto loan. But that is only part of the story when it comes to paying for a new vehicle. You have to account for refueling, insurance, and maintenance.

Auto Insurance Costs

New cars can have higher insurance premiums because insurance is based on the value of the vehicle. Auto lenders might have more stringent requirements beyond the minimum amount of vehicle insurance required by the state of Missouri. You might need to get comprehensive auto insurance so that the auto lender’s investment is covered in case of an accident.

Shop around for auto insurance from many providers to find the best deal. Each provider is different. However, they will assess your risk based on past driving experience, age, any points on your license, how much you drive, and even the vehicle’s safety in protecting you and your passengers in an accident.

Maintenance and Repair Budget for a New Vehicle in Springfield, MO

Research the expected maintenance and repair costs for the vehicle models you’re interested in. Luxury or high-performance vehicles often have higher maintenance costs.

The average cost for annual car repairs is a little more than $650, according to RepairPal. That’s an additional $55 a month. Your actual costs will vary. That’s why investing in a reliable vehicle, like a new GMC or Buick, is important when choosing your next four-wheeled family member.

Fuel Efficiency

Consider the vehicle’s fuel efficiency and calculate potential fuel expenses based on your driving habits. Gasoline typically costs around $3 a gallon in Springfield. Diesel is about 50 cents a gallon higher. 

One thing to remember is that diesel engines are typically more fuel-efficient and last longer than gasoline ones. So, bear that in mind when purchasing a pickup truck or full-size SUV.

3. Set a Realistic Budget

Based on your financial assessment, set a price range that includes the vehicle’s cost, sales tax, fees, licensing, and any additional expenses. Ensure this range aligns with your budget and doesn’t stretch your finances too thin. 

For Missouri, the sales tax for a vehicle is 4.225 percent plus the local sales tax. Springfield adds another 3.875 percent, for a total of 8.1%. So, if your vehicle’s purchase price is $30,000, plan on paying $2,430 in sales tax for a new vehicle in Springfield, MO. The state of Missouri has a handy sales tax calculator you can use based on your locality. As of 2024, Missouri allows car owners to add the sales tax to the amount of the auto loan. The auto lender pays the sales tax while you pay for the auto loan over time.

Figuring Your Available Income

Determining your available income when purchasing a new vehicle in Springfield, MO, involves some math. Here’s a step-by-step guide with a real-world example to illustrate how to assess your situation. This is just an example, and your actual results will vary.

Step 1: Assess Your Monthly Take-Home Income

First, look at your monthly take-home income. For this example, we’ll look at $6,250 in monthly net income before taxes. Taking about 20% for federal and state income taxes means this person would bring home around $5,000 a month.

Step 2: Outline Essential Monthly Expenses

• Rent/Mortgage: $1,500
• Utilities (electricity, water, internet): $275
• Groceries: $1,500
• Transportation (fuel): $200
• Insurance (health, auto): $200
• Minimum Credit Card Payments: $325
• Savings and Emergency Fund Contributions: $150

Total Essential Expenses: $4,150 per month

You have $850 left each month after covering essential expenses. This amount is what you can allocate towards vehicle-related expenses.

Step 3: Calculate Vehicle Budget Based on Available Income

Based on your available income, decide how much you can afford to pay a monthly auto loan. Financial experts often recommend that your car payment should not exceed 10-15% of your gross monthly income. In this example, 10 to 15% of $5,000 is $500 to $750. So, $850 gives you plenty of leeway based on your auto loan payment. 

Let’s say you decide that a monthly car loan payment of $400 is manageable within your available income. This leaves $450 for other vehicle expenses. Keep in mind you have $150 extra with the contribution to the emergency fund.

Calculating Auto Loan Payments

Our handy payment calculator lets you determine a monthly auto loan payment based on the vehicle price, loan terms, and interest rate, combined with a down payment and trade-in value.

Start with the vehicle price. When you search for your perfect vehicle, make sure to find a price that works for you. 

Input an interest rate. Your actual interest rate will depend on your creditworthiness. Pre-qualifying for a loan can help with that. The average auto loan interest rate is around 6.7% as of 2024.

Put in the loan term. In general, the most popular auto loans last between 36 and 60 months (3 to 5 years). The actual length of the loan depends on the auto lender’s standards. 

Find a down payment. Financial experts recommend a down payment amount of 20% of the purchase price. This can lower your loan amount and help prevent negative equity, which is what happens when an auto loan is worth more than the vehicle’s value.

Trade-in your vehicle. Trading in a vehicle can lower your loan amount because that credit goes toward the down payment. Tap into our trade-in calculator to get an estimate of what your vehicle is worth. If you decide to trade in a vehicle with us, our team will inspect it and make an offer.

We’ll run a hypothetical example here:

• Vehicle price: $40,000
• Interest rate: 6.7%
• Loan term: 60 months
• Down payment: $8,000
• Trade-in value: $7,000

Using these numbers, your estimated financed amount is $25,000 in total. The monthly payment for 60 months is $491, while a four-year loan is $595 a month. 

Your monthly auto loan payment could go down if you could get a better interest rate, make a higher down payment, or lengthen the loan duration. Your actual results will vary based on your unique situation.

How to Secure an Auto Loan

The first step is to apply for financing. Once you do this, we’ll reach out to you with the results. We have relationships with several auto lending companies, and our finance team will discuss options with these lenders. 

In general, securing an auto loan goes like this:

Get Pre-Approved: Applying for pre-approval provides a clear idea of how much you can borrow and at what rate. Pre-approval involves a lender reviewing your financial information to determine the loan amount and terms you qualify for. This step gives you an advantage when negotiating with dealers and can expedite the purchasing process.

Gather Necessary Documents: Prepare the required documents for your loan application, such as proof of income, employment verification, and identification. Having these documents ready can speed up the approval process.

Negotiate Terms: Once you receive loan offers, review them carefully and negotiate terms if possible. This includes discussing the interest rate, loan term, and any additional fees. Sometimes, lenders are willing to adjust terms to secure your business.

Finalize the Loan: After agreeing on the terms, complete the loan application process. Review all documents carefully before signing. Once approved, you can proceed with purchasing your vehicle.

Making a Down Payment for Your Auto Loan

Aim to make a down payment of at least 20% of the vehicle’s price. A larger down payment reduces the loan amount and can help you secure better financing terms. For instance, on a $30,000 car, a 20% down payment would be $6,000.

Why make a higher down payment? Your auto loan amount will be lower. When you apply for a lower amount on the auto loan, you might get a better interest rate and shorter loan terms. So, the lower the amount you borrow, the better financial standing you could have. Once you pay the loan on time, your credit score could go up, which makes it easier to obtain better financing later.

You can save for a down payment over time. Think about cutting back your non-essential expenses, like going out to eat or that morning coffee, to increase the down payment amount. The long-term benefits might be well worth it!

Thompson Sales Makes Buying a Vehicle in Springfield, MO, Easier

Thompson Sales has been in business for more than 105 years as a family-owned and family-operated car dealership in Springfield, MO. Our finance team will take care of your auto financing needs as much as we can.Contact us or call (417) 763-6811 if you have questions or want to take a test drive with our team.