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Percentage of monthly income spent on a car?

beanboybeanboy Posts: 442
Up to this point, it has been Want Advertiser specials, =) Now with a decent income coming in, I can turn my head to new cars. Any rough guidlines as to what one should spend as a % of income?

I do plan on financing, and this will be my first time jumping into the realm of getting a loan (outside of school) and would like to get to know the system. Anybody recommend some good resources to learn about the process?

Any other comments about taking the plunge on a high-ticket item for a newbie greatly appreciated...

-beanboy
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Comments

  • lancerfixerlancerfixer Posts: 1,308
    The actual amount is up to what you're comfortable spending, but the figure I've heard bandied about (and seems to be a good guideline) is your monthly payment should equal about 20% of your monthly income.
  • seqladyseqlady Posts: 59
    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.
  • andre1969andre1969 Posts: 21,590
    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
  • timadamstimadams Posts: 294
    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.
  • wilcoxwilcox Posts: 581
    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..?".
  • im_brentwoodim_brentwood Posts: 4,883
    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
  • andre1969andre1969 Posts: 21,590
    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 !

    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
  • gpvsgpvs Posts: 214
    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.
  • leomortleomort Posts: 451
    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
  • audia8qaudia8q Posts: 3,138
    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
  • 98monte_ls98monte_ls Posts: 117
    If you go by Rich's last comment...then I shouldn't even by driving my '98 Monte! I bought it at SmartBuy 48mo w/1k + trade down. Anything shorter and the payments would be to high. But I've had no trouble making payments and can still afford insurance & stuff for it.

    I get the lowest insurance rates (clean record, age 35). On the car I want to buy, I have to look at the longest financing I can - like 72mo - otherwise the payments get too high. Is this foolish? Yeah I know its a Chevrolet. But I'm thinking, I want a car I will "enjoy" driving for all that time. The way I see it, if i keep the car full-term, then I'll own it. How much will a 6 yr old Camaro w/70K miles be worth? Well, my last trade was a 5yr old Sunbird w/87K mi and they gave me 3500 trade. So a Camaro's gotta be what, 3 - 4K trade at least? Maybe a bit more privately. So, then I'll have at least 3K right there for my NEXT car plus whatever I can save in 6 years.

    Is this the wrong way to look at it?

    bruce
  • timadamstimadams Posts: 294
    I agree with Rich. If at all possible, you should pay a car off in 3 years. That way, you are never upside down in case the car gets stolen, crashed or you simply tire of it. Also, if you pay it off in 3 years and keep it another 2 - and (this is crucial) save the payments you had been making in a money market fund - you now have a wad to put down on the next car.
  • maryg2maryg2 Posts: 33
    My goal was keeping my payments affordable over the past 25 years, and they are still under $300 each month. I always get 48 month loans and keep the car 4-6 years. Because Accords have such great resale value, I can usually get a new car and have my payments be only slightly higher than they were for my last car. In other words, for between $100 and $300 per month over the past 25 years, I have always driven a car less than five years old. Since I was single most of those years, reliability and resale value were my main concerns. This time I sold a 96 Accord LX for $11,000 and for another $12,000 purchased an EX-6 for $23,000. If I hadn't hung around Edmunds for a few months, I never would have gotten the good deal on the Accord.
  • audia8qaudia8q Posts: 3,138
    If every customer financed cars in a smart aggressive way my finance department would go broke...haha. But it would take alot of people down a few pegs in make/model and consumers prefer to be upside down until the very last of those 60 and 66 month payments are made and drive a more fashionable car. I see so many people who just bury themself so far for way to long to be anything short of financial insanity. People who should know better. In the last 2 days I appraised 3 potential trade-ins that totalled $22,000 up-sidedown.

    Rich
  • timadamstimadams Posts: 294
    rich:>>In the last 2 days I appraised 3 potential trade-ins that totalled $22,000 up-sidedown. <<

    Astounding! As someone who is careful with money, that figure just floors me. On average, then, those three cars were $7,000+ upsidedown each. With the coming recession and a near-universal lack of money management skills, I can only imagine bankruptcies are about to go through the roof.

    BTW, did those "buyers" roll over that debt into new cars, extending their happy motoring?
  • audia8qaudia8q Posts: 3,138
    All three will be getting out the can of wax and keep making payments...Of course all wanted to lower their payments, had a max of $1000 down and were true payment buyers. If I could have offered them 84 month financing I suspect all three would have new cars today.

    Rich
  • leomortleomort Posts: 451
    wow! with your suggestions, I'd have to rethink my car purchase. Here,I thought 4 years was good!
    Any opinions/advice regarding get a used car?

    Leo
  • 98monte_ls98monte_ls Posts: 117
    Just curious, what is the average monthly payment that people pay for their cars? (if there is such a thing)?

    Is $300 considered a high payment on a $18K car?
  • audia8qaudia8q Posts: 3,138
    My plan is nothing more than a suggestion that would keep the consumer out of financial harms way giving them the opportunity to bail out of the contract at anytime without much pain....Many consumers think i'm nuts but its hard to debate purdent financial responsibility...But many people feel riskier than I am.

    Nothing wrong with a used car...just remember everyone drives a used car!!! Those of us in the biz rarely buy new, we know better. But I also fully understand how good that new car smell is.

    Rich
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