How Much Car Can I Afford In The Military?

The first question any military member should ask themselves when car shopping is “How much car can I afford?” The answer to this question depends on a number of things, like your credit score, what interest rates you qualify for and how much you’ve saved for a down payment.
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How much car can I afford?

Car dealerships and military installations can seem like peanut butter and jelly. 

Working as a military financial advisor, I’d count the dealerships on the road to the base gate. I remember seeing numerous ads stuffed in local newspapers, showcasing the latest cars with the lowest monthly payments. The deals often sound too good to be true – and they probably are.

The first question any military member should ask themselves when car shopping is, “How much car can I afford?” 

The answer to this question depends on several things, like your credit score, what interest rates you qualify for and how much you’ve saved for a down payment. 

Buying a Car After Basic Training

If you’re a service member fresh out of basic training, you might be surprised to find that you don’t make as much money as you thought you would.  

Through perks like base housing, allowances and dining facility or galley use, you can live comfortably while you’re in the service. But to be as comfortable when you leave the military, you need to be smart about your money now. 

Buying a car after basic training might not be the best idea. You haven’t fully adjusted to life in the military yet, nor have you had a chance to set up a budget with your new salary.

If you are on active duty or relocating regularly, you may not even need a car right away. Many new military members can get away with walking to most places on their installation or using the bus. 

If you’re going off-post, you can carpool, use a taxi or use Uber or Lyft. 

If you decide to move forward with a car, it needs to fit within your military pay.

Can The Military Help Me Buy A Car?

Well, yes and no. 

While being enlisted provides you with many benefits, a “company car” isn’t one of them. But, being in the military does provide you with a steady income and some credibility with lenders, which could help you purchase a vehicle. 

Your rank, credit score, and steady paycheck all impact a lender’s decision. So, your position in the military helps you buy a car to a certain extent. 

According to The Defense Finance and Accounting Services, an E-1 in 2022 has a starting pay rate of $1,695 per month. 

Based on these numbers alone, an E-1 with good credit (700 or above) would be able to comfortably afford some type of car payment, but how much? 

How Much Should I Spend On A Car In The Military?

The E-1 discussed above with a 700 credit score would need to find a car for around $5,412 or less. In this range, your monthly payment should be about $169.50 without a down payment or trade-in, based on average national interest rates. 

A payment of $169.50 or less is about 10% percent of your monthly income.

According to The Military Wallet’s Columnist and Certified Financial Planner Daniel Kopp, your car payment should be no more than 10% of your take-home income, unless you have low or no housing costs. 

“The higher the housing cost, the lower under 10% your car payment should go,” he said. 

By purchasing a cheaper car, you’ll have money left to save, invest or buy a better car down the road. You’ll also be able to enjoy your vehicle without stressing over the payments every month.

Keep in mind, you can afford more and still stay within that percentage as your rank, time in service and credit score go up. 

How to Budget for a Car

When budgeting for a car, take a look at your income first. Then set aside 10% of your income for at least three months, and see if you’re comfortable with the money you have left.

Remember to budget for maintenance and car insurance, which might be expensive, depending on your age. 

One way to do this is to fill out a spending plan or budget worksheet, like this one from the Department of Defense’s Office for Financial Readiness.   

Fill in all the expenses, including rent or mortgage, cell phone bills, child support and other obligations. Leave the car payment blank if you don’t have one already. 

Once you’ve added everything up, look at how much money is leftover to see what kind of car payment you could comfortably afford. 

You can also budget for your vehicle’s downpayment by saving your income tax refund. You might even get enough back to buy a cheaper car without a monthly payment. 

If you can pay cash, you should – especially for a used car, Kopp said. 

“If you have good credit, buying new can often get you a 0% or very low-interest loan, which can make sense for more people as used car prices have been so high since Covid-19,” he said. 

“We are in a rare used car market right now though, with many used cars appreciating in value.” 

Loan vs. Lease

If you need to take out a loan for a vehicle, you get to choose how long you’ll pay for the car and who you’ll borrow the money from. 

At the end of the loan, you’ll walk away owning the vehicle.

Unfortunately, in my experience advising soldiers on their finances, I saw many focus only on a vehicle’s price tag and loan time. 

When the price of the car or loan times were not favorable, they’d decide to lease a car as a better option.

Leasing a car might sound good to many service members. You get to drive a new car every couple of years, and it might be a more luxurious car than you are really able to afford. 

The biggest issue with leasing is the mileage restrictions. Many service members may find that they owe money when returning a lease because they went over the 12,000 to 15,000 mileage limit per year. Excessive wear and tear can also cost you. If you haven’t budgeted for a potential $5,000 to $10,000 fee when you turn in a vehicle, it can be a significant financial burden. 

Frequently, service members end up re-leasing the vehicle instead of paying the fees because they don’t have them available. With these considerations in mind, consider purchasing a car – even if it means taking out a loan – over leasing a car, unless you don’t plan to drive it much. 

Auto Loans for Service Members

The good news about loans is that some banks tailor them specifically for military members. 

Military banks like USAA, Navy Federal Credit Union and PenFed Credit Union offer military auto loans. 

Beware of car dealerships’ in-house financing options, which may come with longer payment terms or higher interest rates. 

Remember, some lenders can prey on young military members. Look at your interest and your insurance before you agree to a loan so that you’re not accidentally buying a vehicle that you truly can’t afford.

Here’s a cautionary example: 

Your car salesperson sits you down to work out a better deal on your loan. The salesperson says you’re only going to pay $300 per month instead of $500. What you don’t know is that to get that rate, your loan payment term is 84-months long at a 15% or higher interest rate. 

By the time you’ve reached the end of your car loan, the vehicle may have already broken down, or you might want something newer. 

Due to the longer payment terms, you find yourself upside down on the vehicle and roll your old loan over into the new loan, resulting in an even higher payment.

How to Get Military Discounts On Cars

Even if you’re shopping at a “no-haggle” dealership where prices are advertised as final, don’t be afraid to ask for a military discount on your car purchase

You’ll need to provide military identification to be approved for such discounts. And, like anyone else, you will also be required to verify your monthly salary and other information for loan approval.

Special Auto Discounts Offered For Military Members

Many auto manufacturers show their appreciation for the military by offering discounts. According to TrueCar.com, discounts range between $500 and $2,000, depending on the manufacturer.

Acura, BMW, Ford, General Motors, Harley Davidson, Honda, Hyundai, Mitsubishi, Nissan, Subaru, and Toyota provide military appreciation discounts.

In some instances, the discount extends to your immediate family members too. 

To redeem these discounts, you will need to confirm your military status.

Remember to ask about available military discounts when you shop for car insurance and other products as well. 

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About Tamila McDonald

Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now, MacDonald is a freelance personal finance writer covering everything from bankruptcy to taxes.

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