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How Much Car Can You Afford?

Nov 4, 2007
Purchasing a car can be very stressful and when it comes down to budgeting for a car, you may start to get confused on how much you should actually spend. Like anything you buy in your life that requires a monthly payment, you want to make sure you can afford it and you're not living beyond your means. Whether it's a car, home, loan, etc, you have to be responsible.

Like any budget, you're going to want to write down every single expense you have each month. With a car, most experts say that you shouldn't spend more than 20% of your monthly income on your car payments. This includes your cap payment and insurance. A lot of websites online will allow you to get estimates and loan quotes.

When it comes to your budget, you have to remember that 20% may seems like a lot, which it is and you can get a lot of car for a few hundred dollars. Now, if you're going to purchase this car with cash, you obviously won't have to worry about the 20% unless you have zero dollars in your bank account.

Interest rates are important when planning out your budget. Depending on your credit history and the time of the year, you may find yourself in a bind and noticing that you're going to have to pay a lot just toward interest. If the interest rates are low, you may find yourself buying a jaguar. If the interest rates are high, you may find yourself buying a low-end car that you don't want. The key to budgeting is now going over your budget. If you're greedy, it will hurt you in the long run.

A few you things you have to factor into your budget numbers are your down payment. In the old days, most auto dealerships required that you paid a down payment. What you'll find now is that most places, just like mortgages don't even require a penny. The more money you have to put down, the better! If we were to say you made three thousand dollars a month, this would leave with you a six hundred dollar budget. This can buy you a lot of car. Now just imagine if you add a few thousand dollars toward your down payment.

Now, the 20% rule doesn't apply toward everyone. There are exceptions for a few people. If we take a student for example that lives at home with his/her parents still, they obviously aren't brining home a big paycheck. Therefore, they will have no choice but to spend over their 20% budget. This is obviously ok because a house payment is a majority of your bills. A parent's responsibility is to let them know that it's extremely important to get that car paid off by the end of their college career or they may find themselves with bills over their head.

If you're responsible with your money and you're good with a budget, just remember the simple rule. Don't spend more than 20% of your total income for the month.
About the Author
Tom Tessin is the founder of the T2 Web Network, LLC, which maintain and runs FINDgascards.com which focuses on the Best Gas Credit Cards.
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