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Smart Shopper Percentage of monthly income spent on a car?
390 messages, Last post on Mar 21, 2009 at 5:50 PM
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| At the risk of sounding like your mother, keep in mind that those % are what a lender will LEND you; huge difference between what that and what you're comfortable with...unless you want to be car poor, house poor, or whatever poor....my advice is not to get into any deep debt. Keep the loan as short as possible (no more than 4 years) and you'll quickly build up a good credit rating. Life is alot more fun when you have some extra cash at the end of the month. | |
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don't forget things like insurance, fuel, maintenance, etc. You're going to have to pay them, no matter what kind of car you get, but they will still vary from car to car. I remember my first year in college, I was paying about $800 a year or so for liability-only insurance. I looked at some new and newer used cars, but when I saw what it would do to the insurance, I said forget it! (I was only 18-19 at the time though, so of course it's going to be more) I remember that my insurance on a 1989 Ford Probe 4-cyl would have been about $3200 a year. I also looked at a couple Monte Carlo SS's, around '85-87, and it would've been the same...$3200. Now, I'm pushing 31, and going from an old clunker to a new Intrepid only bumped the premium from about $250 a year to $560 a year (good driving record, multiple policy, low risk area, etc) Lancerfixer, does that 20% count total car expenses, or just the monthly car note? If it's just the car note, I need to go out and buy myself a more expensive car  -Andre |
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beanboy, We had a discussion about this in another thread a while back. One of the numbers thrown around was that you should probably buy a car that costs 1/3 of your annual income...certainly no more than 1/2. Again, simply a rule of thumb that you can follow or ignore at your whim, but don't forget to think about insurance, gasoline, registration, service, tire and battery replacement, etc. lancer: I would hope at least that your 20% example is based on after-tax (take-home) pay, not gross income! If so, that's probably a fair number if you include insurance, registration and other auto costs in the calculation. |
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If a single person, then opt for at least 20% of net income. If a homeowner, then opt for about 15%, depending on family and other commitments. I recommend that a person save up a substantial amount prior to purchase of a car. It is always nice to be one step ahead of consumer debt. This is an unpopular notion with most... because most new car buyers are borrowing from the "other guy". In the short-term, this is the easy way. They are making someone else rich, they are being driven by the smell of a new car rather than the sound of reason. If you save your windfall, then before you know it you'll have enough for a shiney new vehicle and you'll avoid the debt trap. Hard to do, but you'll feel better about yourself for doing it. Another tactic to save money is to buy a nearly new vehicle. Let the other person take the initial 2 year depreciation hit. Many smart shopper use this method. My brother, who has a PhD, swears by it. I know this discussion wasn't suppose to be about saving money...so I yeild to the next "Smart Shopper"....and remember..."HOW much can you afford to pay each month..?". |
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Insurance? Ugh... dont remind me. Wife just totalled her RX300 in the rain yesterday... dammit... There go the rates... Had the thing like 2 months to replace her last car which she also totalled! ARRRRGGGGHH! "No problem Mr Weismann, your adjusted rate is now $850 per month" I can just see it coming! Bill |
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Sorry to hear about your wife's accident. I hope she's okay. I've actually been very lucky when it's come to accidents. I've rear-ended four people in my lifetime, but none of them ever reported it, as the damage was either minimal or nonexistent. The first time was when I was 19, two times were in the rain, and one time a lady slammed on her brakes on purpose. She was in a long line of cars that were running a red light around Christmastime, and I decided that enough was enough, so I pulled out into the intersection, cutting off a Mercedes that was about to run the light behind her. Well, I turned my head to make sure he wasn't going to hit me, and when I looked back, this lady stopped her car about 100 feet behind the car in front of her, and I bumped her. The first thing out of my mouth was "are you all right?" The first thing out of her mouth was "You just can't let anybody out, can you?" and then she drove off. So that pretty much told me that she was being a <expletive> ! I have had two cars get totaled by others, though, but thankfully, no bodily harm. Somehow, over the years, I've been lucky enough and kept my record clean enough, that I'm only paying something like $560 a year for the Intrepid on insurance. I have a multi-car policy + my condo, so that probably helps, too. I know this 19 year old kid who, between his car payment on a stripper Saturn, and insurance, is shelling out $550 a month! But, at least he has the smell of a brand new car!! Well, he's a delivery driver like me, so he has the smell of a brand new car and pepperoni! -Andre |
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| Depends on a lot of variables. How much monthly take home do you get? How much is your house mortgage/rent? Groceries and food? How much of your income are you planning of saving? Then decide how much of a car can you afford. I think a roof and food are more important than transportation. | |
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you're suppose to put down at least 20% of cars purchase price, finance no longer than 4 years, and no more than 20% of your net monthly pay. Leo |
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| http://www.fool.com/car/Buyingacar.htm?ref=PFinAg | |
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20% of the purchase price down and payments no longer than 3 years. If you can't do this on the car you want, your probably can not afford the car. You also will stay at or around the depreciation rate which would allow you to get out of the contract without taking a bath at most any point. The only thing that would change my thinking would be if a very special finance rate is offered...example. Mazda is offering up to 48 months at 0% financing on some models. In this case finance 100% and any extra you can get at the longest term offered. Rich |
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