How Much Car Can You Actually Afford?

We want to buy car but do we really know how much car can we afford? Read this article that really help us to make decision to own a car :-


1. Set a monthly loan limit. If you’ll finance your vehicle with an auto loan, you’ll need to decide how much you can comfortably pay each month.

Don’t even think about the price of the car. Start by tallying all of your other monthly expenses and comparing the total to your monthly net income (after-tax pay), to get an idea of how much money you have to spare.

Keep your total vehicle expenses less than 20 percent of your net household income. This is not just your monthly vehicle payment, but also all related costs such as gas, maintenance, etc. For example, if you and your spouse bring home $5,000 per month, you should be spending less than $1,000 a month on your cars.

Consider your current debt load. Even if your car expenses are less than 20 percent of your pay, they could still detract from your ability to pay off other debt such as credit card balances or student loans.?To keep your debt under control, a common rule of thumb is to limit your total household debt payments—including mortgage or rent—to less than 36 percent of gross (pre-tax) income. So if you and your spouse make a combined $80,000 annually, you should pay less than $28,800 toward all debt each year.

2. Look beyond the sticker price. Your total vehicle-related expenses stem from lots of different sources, only one of which is the price tag on the window. Don’t forget:

Taxes and fees: State and local sales taxes, title and license fees, and other legitimate dealer charges could increase the total cost of your car by as much as 10 percent.

Interest: A low APR could make a big difference in how much you pay over the life of your loan. Get a pre-approved quote from your bank before you buy.

Insurance: Don’t use your current insurance costs as the barometer—the new car will likely be different. You might need to add collision and comprehensive coverage if you didn’t have it before. Luxury and/or high-performance cars cost more to insure, as do vehicles that have lower safety ratings or a high frequency of theft.

Fuel: If you’re on the fence between a fuel-sipper and a gas-guzzler, don’t dismiss the savings of a few extra MPGs—it can really add up over the years.

Maintenance and repair: Typically, high-end cars cost more to keep up. Some carmakers offer longer warranties or free scheduled maintenance programs that can save big bucks when break-downs occur

3. Decide on a down payment.

In the not-so-distant past, most lenders required a sizeable down payment before issuing an auto loan. Now, buyers can get into a new car more easily, making little-to-no down payment and financing an expensive new car over five or even six years.

Here’s what to consider when planning your down payment:

Interest adds up quickly. When you finance a large amount of money, you pay a lot more in interest charges. In fact, a large chunk of your payments for the first year will go to paying off interest. And if the car depreciates faster than you gain equity in the vehicle, you become upside down on the loan.

The more you can pay out of pocket, the better. Short of paying cash outright, the best way to buy is with a substantial down payment—shoot for 15 percent or more.

Leverage your old car. The obvious way to come up with a down payment is to sell your current vehicle. Trading it in at the dealership is convenient, but you can usually get more for your used car by selling it yourself. Estimate the fair market value of your car at internet. You can also place classified ads in your local paper and sites like Craigslist.com, Cars.com, Autotrader.com and others.

Consider dipping into savings. If your current car won’t net you enough cash for a big down payment, don’t stop there. Determine if you should pull some money out of your savings account, especially if the interest rate on your auto loan will be higher than what your money is earning in the bank.

At the very least, pay down the basics. Make sure you have enough saved to pay the title, tax and licensing fees upfront. Rolling these costs into the loan will be sure to leave you upside down when it comes to trading in your vehicle.

Source :- DivineCaroline

If you follow my previous entry about Buy or Repair you will know that I've
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