You shouldn't spend more than 20% of
your monthly income towards your vehicles. That includes all vehicle
payments, insurance and maintenance. It doesn't matter what type of
other debt you have. Even if you have no other debt, you should
stick to the 20% rule.
Cars are not a good investment. The
minute you drive a new car of the lot, it can lose as much as 45% of
its value. Cars are depreciating constantly. Listen, can you hear
it? Your car is sitting there right now going down in
value.
That means that you don't sink the
majority of your income into a vehicle. You'll never see all of the
money again.
To calculate your monthly payment,
include the purchase price, the down payment, interest rate and term
of your loan. All of these items affect how much car you can get for
your money. If interest rates are low, you can buy a more expensive
car to fit into your budget limit. When rates are high, you may not
be able to buy such a costly vehicle.
Your down payment will affect the
size of your monthly payment. It used to be that you had to make a
down payment. Today, down payments are pretty much optional for
those with good credit. Car companies and dealers want your business
so badly, that they will often waive the need for a down
payment
The more down payment you provide,
the lower your monthly payment. So, you can afford more car and
still be under the 20% limit. But don't forget that you are still
spending money on an asset that is constantly decreasing in
value.
Keep in mind the amount you can truly
afford to pay. You have to figure in your insurance rates, fuel
costs, maintenance and repairs. These can often add up to more than
your payment!
Some models cost more to repair than
others. Insurance rates vary widely from model to model.
If you are buying a new car, you will
have a warranty for a while. This can save you a lot of money. Look
at the fuel costs and gas mileage of the vehicle also. Today's gas
prices can dictate what type of vehicle you can afford to
drive.
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