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Percentage of monthly income spent on a car?
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
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
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
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.
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..?".
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
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
Leo
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
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
Rich
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?
Rich
Any opinions/advice regarding get a used car?
Leo
Is $300 considered a high payment on a $18K car?
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
Another question for you. When using your quidelines, it would be unlikely I'd be able to buy the car I'd want new. I was looking at Subaru Forester L which I'd be able to afford on a 4 year payment plan. Unfortunately, Subaru doesn't run those special financing deals like other manufacturers. But if I were to go used, say a 2 year old Subaru, I'd be able to move up to the Forester S model with a three year payment.
I typical try to keep my cars 7-8 years and avergage 25,000 miles/year. I'm concerned/worried about buying a used car that's already going to have about 24,000 miles on it given the mileage I'm going to rack on my cars. Do I have a legitimate concern or just being paranoid?
My other choice would be selecting a cheaper newer car with special financing deals. In particular, the Mazda Protege which offer 0% financing for 4 years. Since I keep my cars longer than average and rack up some many miles, resale value is going to be as important.
Which would be a better choice all things considered? Which is the better car all things considered?
Thanks for the help.
Leo
I've never done a prudent financial thing in my life. haha
I personally would buy a 3 year old higher line type car that has great long term durability and a MFG. brand extended warranty. I always choose comfort/driveability over sensability. I'm just not afraid of used cars...but 0% financing makes most anything attractive. Our mazda store has been posting tremendous sales due to the special financing...You have a valid concern about the miles on a used car, but also most dealers have the ability to look up that cars warranty history. Bad ones are usually bad from the get-go and can be easily weeded out. If you going to put on 150-175K miles 25k extra wont matter on a good quality car...
rich
We use carfax on all our trade ins. It has picked up a few title issues that potentially saveds us alot of money...
But nothing beats a good looking over by a trusted professional.
Rich
Car_Man
Host
Smart Shoppers / FWI Message Boards
If your score is over 720, most dealers can now buy money for about 7%...
Means we can often beat credit union/online banks.
Bill
Of course, I'll have to wait to find out. They're still nice cars
Leo
Car_Man
Host
Smart Shoppers / FWI Message Boards
Leo
That's almost what I paid for my house.
I'd want to be making at least $1 million a year before I'd spend that much on a car.
Maybe the calculator needs some work.
Or maybe I should just go buy that Bentley...
That's what makes the cute-ute class so attractive to me. A lot of bang for the buck--space, a V-6 in my case, not as hard on gas, and a payment that will leave you with a little extra for other things, like investments with good yields.
All the points here discuss % of income. Why not a % of net worth excluding home.
I believe that is what post #41 is getting at.
Your net worth really wouldn't enter into it, especially if you're like most people and most of your net worth comes from your house and your retirement plan. Because cars depreciate, obviously you wouldn't want to cash in stock, which hopefully is appreciating - or will eventually, pray God, after this last year! For most people (unless you're living off your trust fund, or were smart enough to trade in your tech stocks at their high) car payments or savings for a car come from cash flow, not appreciation of other assets, so that's why you would want to think in terms of percentage of income, not percentage of net worth.
The Korean brands are selling more cars these days while the Big 3 are selling less, and I'm sure sticker shock has a lot to do with it.
As to who will buy the $30k cars, the car companies have their target markets identified before a car goes into production. Once it's in production, if they figure the demand is going to be less they can build less of it and still keep the prices up. For ex, BMW supposedly makes twice the average industri profit on each car sold, but then they're not out to put a BMW in every driveway. They know their audience though.
BMW built over 1,000,000 cars last year. In Europe, they compete against VW (low end 3 series with 4-cyl engines) as well as MB and other luxury manufacturers on the high-end. Plus, they've got the rights to the new Mini (coming soon to only 90 BMW dealers around the country) - $18K to start.
I see the logic in the 25-33% of net income argument, I just think that most folks want to drive a bigger/faster/sportier/more luxurious car than what they can get for $15-20K.
If you can afford $400 a month -spend $300 you will be happy with your car.My wife wanted a new car,I figured a Camry or Accord for around $20.000 was what she needed.She drives about 100 mile a week(a cab would be cheaper,but--).Instead,I found something cheaper-she likes the car,I like the car.Now,if the same car cost me over $20,000 I wouldnt like it so much.
Personally, I would feel uncomfortable spending more than 15% of our monthly take home pay on a car payment. My current car payment is 5.5% of our monthly take home pay, and I hope to never go above 10%. My younger sister, against my advice, is spending 25% of her take home pay on a new car (Acura TL-S), the same car she was SOOOO excited about beforehand and doesn't even keep clean now. IMO, 25% definitely is too high.
It's sad that people get so in hock for cars that they forgo other things in life, but we each make our own choices.
Income 60,000 * 10% = 6,000
Savings 60,000 * 10% = 6,000
Car cost 12,000 (Means Used)
Or
Income 60,000 * 10% = 6,000
Consumer debt -9,000 * 10% =-3,000
Car Cost 3,000
Income of 60,000 sounds nice but really is not an indication of anything.