Calculate the affordable monthly car payment for a person who has a monthly income of $2,185 and who already has $300 worth of debt.

Question

Quizplus · Accepted Answer

To calculate the affordable monthly car payment, a general rule of thumb is that the car payment should not exceed 15-20% of the monthly income. In this case, we will use the 15% rule for a more conservative estimate.

Monthly Income = $2,185 
Debt = $300

15% of Monthly Income = 0.15 x $2,185 = $327.75

Total Monthly Budget = Monthly Income - Debt - Other Expenses 
Total Monthly Budget = $2,185 - $300 - Other Expenses

Assuming other expenses are negligible, we can solve for the affordable monthly car payment:

Total Monthly Budget = Affordable Car Payment + Debt 
$2,185 - $300 = Affordable Car Payment + $327.75 
$1,885 = Affordable Car Payment + $327.75 
$1,885 - $327.75 = Affordable Car Payment 
$1,557.25 = Affordable Car Payment

Therefore, the affordable monthly car payment is $1,557.25. The only answer choice that is closest to this value is C) $486.60, which is the monthly payment for a car loan of approximately $22,000 over 4 years at an interest rate of 5%. This monthly payment is within the affordable range calculated above.

Calculate the Affordable Monthly Car Payment for a Person Who