How much car can I afford?
Once you’ve determined how much you can get for your old car, the next step is to determine how much you can afford to spend for your next car. We found a helpful calculator that looks something like this:
Down payment $_
Monthly payment $_
Interest rate $_
Loan term (in months) $_
Value of your trade-in $_
Cash rebate (if applicable) $_
Once you’ve filled in as many of these numbers as you can, you’ll know “You will need to qualify for a loan of $_ to finance your purchase. ”
This assumes you know how much you’ll be putting down (between any cash you’ve saved and your trade-in) and how much you can afford or want to pay every month. You can play around with different interest rates and terms of your loan.
If this formula doesn’t work for you, go to google and find one that does. You must have a good handle on the relation between how much a car costs and what the resulting monthly payments will be.
I mention all of this because as I talked to people about the cars they’ve owned, I was surprised at how many said that they couldn’t believe how much their monthly payments turned out to be. One person bought a used Mercedes wagon and almost dropped dead when the first payment came due—$850! If he had determined before he went out how much a $45,000 car was going to cost him every month, he could have spared himself a heart attack.
While it’s best to know exactly how much the car you’re going to buy is going to cost you every month, you can guesstimate this cost by knowing that for every $1,000 you finance, you’ll have to pay about $25 a month. For a $10,000 car, you’ll pay about $250 a month.
Seven final thoughts on figuring out how much you can or want to spend on your next car:
: by adding up all of your current bills and other expenditures, including rent or mortgage, groceries, etc. , you should be able to determine how much you can spend each month for a car
: once you’ve looked at some cars–either online or in the showroom, look at your budget again. This is usually the most sobering way to bring you back to reality if you’ve found a car that is out of your price range. Even if you cut back on features, if you can’t afford to make the monthly payments, you shouldn’t buy the car
: very few people stick to their budget. They may have determined that they can spend $20,000, but if they find a car they’re crazy about for $25,000, their budget often goes right out the window
: when determining how much car you’ll afford, please don’t forget to factor in the cost of repairs between the different models on your list, the cost to insure the car and the cost to license it and pay for taxes
: sometimes you save money, or gain enjoyment or peace of mind, by spending a little bit more. My favorite feature in my Element is the moon roof in back. I don’t remember how much extra I had to pay for that, but it was well worth it
I still shake my head at times when I think we paid extra for a car with leather seats (the cloth seats for $1,200 less were fine with me). But I have to admit that leather seats are a lot easier to wipe clean when our four year old or one year old make a mess. I can’t even imagine cleaning up cloth seats that those two have sat on. The extra we spent was well worth it; not having spent this money would have caused me to regret our purchase
: car salesmen don’t hear you when you say you can afford, say, $400 a month for your car payment. Good salesmen are canny judges of people. Your lips might say $400, but some other part of your body is screaming, “Give me a car for $550 a month!”
: car dealers learned a long time ago that they can make a lot more money if every salesman has to discuss every sale with the sales manager. When your salesman leaves you at his desk, or out on the showroom floor, he’s telling the sales manager everything he knows about you. The sales manager then begins to map out their attack. You need to know how much car can I afford before you go to the dealer.
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