Understanding How Much Car You Can Really Afford
Auto Loan Expert
There is nothing better than a new car. However, before you head over to your local dealership, you need to know just how much that car will cost you overall. When you are at the dealership it is too late to budget. You will be intoxicated by the new-car smell, and they can talk you into any monthly payment. You must have a payment that fits into your budget or it can cause financial ruin. How much car can you really afford? Don’t be putty in the hands of a car salesman. Know for sure what you can afford.
There are many online calculators that can help you decide what is best for your income level. They are easy to use. You have a certain amount of money coming in each month. You have expenses like a mortgage, car insurance, cable, phone, the internet, utilities, and commuting costs. There are some practical limits to make sure that your spending is not emotional, but they should be based on smart decisions. Avoid those seductive television advertisements that lure you into their lots where they can get you into the car of your dreams. You need a car that you can afford.
Prices Are Not Always As They Seem
The worst thing you can do is look at the price on the window to base your decisions. Those television commercials are no better. They don’t mention the whole list of expenses that you are required to pay. For instance, there are always dealer fees, and add-ons. The base model that a dealer advertises is always in a lackluster color. If you want the sparkly paint that shines like a new penny, then you will shell out at least $1,000 more. Don’t forget about sales tax, registration costs, and the documentation fees. Add about 10 percent to the car’s price to cover these expenses. Unless you are doing an all-cash deal, they will work in extras that you don’t even catch.
The dealer-installed options can put a lot of extra money on the price of your car. If you want to add chrome wheels, running boards, an alarm system, you will find out that they cost a whole lot more. Unless you really need these options, steer clear of them. They will also try to upsell you and add warranties to the car. Even if the salesman isn’t successful with any up sales, then the finance manager will try. Those protection plans and warranties will do nothing but inflate the overall price.
The True Cost of Ownership
Owning a car is about so much more than your monthly payment. You will have registrations fees, fuel, repairs, maintenance, and the depreciation to worry about. Take a look at these costs and then you will have a true idea of how much that car will cost you. For instance, let’s assume that you want a candy-apple red sports car. If you are trading in the family van on this number, don’t expect to pay the same amount in insurance. A sports car with a turbo engine and some accessories will cost more to insure. Before signing on the dotted line, call your insurance company and get a quote. That affordable car may be unavoidable when you add the insurance costs into the equation.
The 20 Percent Rule
Your car and all automotive expenses should never exceed 20 percent of your bring home pay. It is a little restrictive, but it is just a guideline. Those who are really into cars may spend more than 20 percent, but they will make up the difference in other areas. For instance, you may not go to movies or out to eat much, so your entertainment budget is lower than most.
Let’s assume that you make about $3,000 a month. You need to keep your automotive expenses at around $600. That not only includes your car payment, but insurance, gas, and maintenance too. So, realistically, you should keep your car payment around $350 and that will leave another $250 for other car-related expenditures. If you put more money down on the car, you can get a lower payment.
The length of your loan and a trade-in can also affect that monthly payment. A car payment calculator can help you examine these various factors and see if you can really afford the car. Also get an estimate on your car trade in value.
Set a budget and make sure you stick with it. If you have $30,000 to spend on a car, then you should set your maximum price at about $25,000. By the time you add in all the taxes, registration fees, and any upgrades, you will easily be over your target price. Check out automotive sites like Kelley Blue Book and Edmunds. They have numerous car finding tools that can show you the car you want and the average price. More importantly, shop around for online auto loans and cars. Don’t buy the first car you see at the first lot. Some dealers will have better prices than others, and some are more willing to haggle with you on the price.