Buying
a Car: What Can You Afford
There's no sense getting all worked up about
a car you can't afford. So save yourself some
disappointment and figure out a payment amount
you can handle before you start looking.
Break out your budget
Start with your budget. (You
do have a budget don't you?
If not click here for budgeting
information.)
How much room is
there in your budget? Could
you, for example, fit an extra $200 a month
in your budget without
strapping yourself too much
or eliminating your savings? If so, can you
fit an extra $300
a month in your budget? No?
How about $250? Continue that process until
you have a general
idea of how much you extra
room you have in your budget. That's how much
you can afford
to pay for a car every month.
Details, details, details
Before you get too excited
about how much you can afford
and start looking at the
fanciest sports cars or most luxurious
sedans, remember that your
expenses will include not
only your car payment, but also your insurance,
gas, maintenance and other
miscellaneous costs associated
with operating
a vehicle. As a general
rule, the more expensive
the car, the more it costs
to insure and maintain it.
Operating expenses
can be
as much as one third to
one half of the monthly cost
of a new car. So take
the amount that fits
in your budget and multiply
it by .66. That is the
most
you should consider spending
on monthly payments for the
vehicle to be able to afford operating
expenses as well.
Last
but definitely not least
This is going to hurt so
let's just get it out
of the way - you're going
to need a big chunk of change
for a down payment. How
much? The bigger the
better.
A dealership isn't
going to give you a car with
only a signature as
a promise you'll pay for
it later. But cash is a great
symbol of your commitment to
make all the payments.
That's the basic idea of
a down payment.
To
get a loan for a car, and
often for a lease, you'll probably
need to make a down payment
of around 10% of
the total price of the vehicle.
The larger your down
payment, the smaller your monthly
payment will be and
the less you will
pay in total for the car in
the long run. But
make sure you don't cripple
yourself or deplete
your
savings account with
too large a down
payment. Find a comfortable
balance.
We'll discuss
exactly how a down payment
affects your financing
and monthly payments
later on. But for now it's
important that
you know you will need a large
sum of cash when you
buy a car. If you can, delay
purchasing a car so that you
have some time
to save up a decent down payment.
Now that you know how large a monthly
payment you can afford,
you can start looking
to find out how much car
that will get you.
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