What is the rule of thumb for how much car you can afford?

[MaxPowers]

I tried doing a search, but it came back with no results even when I searched for "car"

I will be in the market for a car in 2 years and am looking at the models now because they will most likely be the used models I will be looking at in the future.
With an income of $55k, no debt and no crazy spending habits, how much car can I afford? I am ball-parking $30k for a used car. With a 3 year loan, that seems like a hefty car payment. Though I wouldn't know, cuz my current car is paid off.

fyi, I am looking at the Infinity G37x or Cadillac CTS coupe. My current car is a 2006 Mazda 3 =)

[jpg7n16]

There's something about your line of thinking that I don't like.

I think it's more that you're taking searching for a car the wrong way. Instead of asking, "how much car can I afford?" - you should rather ask, "how much car do I truly need?" Then follow that up with, "what is the cheapest car that fulfills all my needs?"

For me, quality was definitely a need. I had a $1k Toyota Carolla for a few years. I was sick of cars breaking down, so I wanted something more stable. After some saving, I got a $13k 2006 Honda Accord, paid in cash.

Now I could "afford" a much more expensive car, but why in the world would I want to?? This car meets all my needs for less than 1/2 the price of other cars on the market.

The object isn't to get the biggest shiniest car possible. It's to meet your needs for transport (comfort, space for kids, mileage, durability)

[krantcents]

Consumer Reports’ financial experts recommend that your total debt payment be no more than 36 percent of your gross income. Going by this rule, you can use the following steps to determine how much you can afford:

Calculate what 36 percent of your gross monthly income is.
Itemize and total all your monthly payments, including your mortgage or rent, credit card bills, and other installment loans.
Subtract the total of your monthly payments from the 36 percent figure. Add the other expenses of a new car such as insurance, registration fees, and sales tax.

Are you doing putting money into a 401K/IRA and savings? Remember cars go down in value and you paid off car is only 4 years old.

[Mr Nice Guy]

Krantscents, I noticed you post o n "The Finance Forums" as well?

[disneysteve]

Originally Posted by MaxPowers

I am ball-parking $30k for a used car.

My current car is a 2006 Mazda 3

Why are you replacing a 2006 car?

I think 30K for a used anything is nuts and, in your case, way out of your price range based on your income.

The rule of thumb is a car payment not more than 10% of your monthly income. I'm guessing your take-home is somewhere in the $3,000 neighborhood assuming 10% goes to a retirement plan. Is that about right?

If you buy a 30K car with a 5K down payment and finance 25K at 5% for 36 months, your payment would be about $750. That is way out of line with your income. You should be looking to borrow more like 10K.

Originally Posted by jpg7n16

There's something about your line of thinking that I don't like.

Instead of asking, "how much car can I afford?" - you should rather ask, "how much car do I truly need?" Then follow that up with, "what is the cheapest car that fulfills all my needs?"

I agree with this 100%!

I earn considerably more than you. My wife and I currently drive cars that are 10 and 12 years old. When we replace them, we'll look in the 18-20K range.

[littleroc02us]

So your monthly income is around $3316 and you are thinking about buy a used vehicle for around $30000. One word "insane!" I did a car payment on a $30000 used car at 4.5% financing for 3 years, $2000 down and that comes out to $908 a month. Now I'm not going to say you can't afford it but why would you want to stick 27% of your income into a car. Those numbers represent more what you should stick into a house monthly. Plus your buying a liability that depreciates in value every second of the day. Assets are where you should be sticking your money. (house, investments, etc...) My rule of thumb is this and others have theirs. Unless you have a networth of over a million dollars and can pay cash for the car, you can't afford a brand new car and especially a used car for 30k. Since it will be 2 years until you buy a vehicle here is what I would do. Find a more reasonable type of vehicle that you could pay cash for in 2 years for 15k. You can get an extremely reliable vehicle and fun to drive for that amount. I mean you say you have no debt, so saving up 15k would only take 7 1/2 months if you were to put away 2k a month. That's how easy it would be. I bought my used car for cash for 10k after taxes, license, etc.. It wasn't hard at all.
Don't waste your money on a liability. No one ever became wealthy by buying liabilities. Good luck!

[MonkeyMama]

My personal rule of thumb is to not buy more car than I can pay off in a year. This has saved me a fortune over the years and kept me out of debt. The most I have ever paid for a car was $13k. At this point in my life, I don't see any reason to spend more. We keep our cars 15-20 years, generally. People tend to equate quality with name brand, but we have found much better deals just looking for an inexpensive car with a good track record.

[bjl584]

General rule of thumb if you must finance a car is to make sure the payment is no more than 10% of your monthly income and to not finance it for more than 36 month. Figure out those numbers and base your car shopping criteria accordingly.

[wincrasher]

As usual, people on here are confusing two issues. What you can afford vs. what is smart money.

What you can afford is guided by either a) what you can save in the alotted period and pay without debt or b) keeping your total debt payments within 41% of your gross income. That is the limit for mortgage qualifications considered "prime".

Now smart money is a different argument. Is a particular car worth that kind of money? Are there better uses for your money other than transportation? Should you drive your current car into the ground and save your money for other things in the future (some you may not even think you would ever want or need)?

I'm a person that considers cars more than just basic transportation. I enjoy them and keep them like museaum pieces. You won't find my cars dirty, dented, scratched, etc. I buy mine new and keep them as such. But I'm a nut and can afford it.

I'd say that for your income level, you are looking at cars that are above your financial status. I'd recommend, that if you are in a good place financially and have good savings habits, a $15k used car, or maybe an entry level $20k new car is more appropriate. If you have goals for a house and kids in a few years, then you should spend alot less. Figure out your long term priorities and not get enticed by the sexy shiny. You'll find lots of posts on this site by people complaining about being saddled with this big car payment and now they want to buy "x" but can't and what should they do?

Good luck!

[feh]

Originally Posted by jpg7n16

I think it's more that you're taking searching for a car the wrong way. Instead of asking, "how much car can I afford?" - you should rather ask, "how much car do I truly need?" Then follow that up with, "what is the cheapest car that fulfills all my needs?"

I agree completely. Think about how little you can spend, not how much you can spend. Don't treat your car as a status symbol.

[Ima saver]

I agree with Wincrasher. Dh and I are car nuts too. The cars are washed several times a week and have never had a scratch on any of them. I still have my 1978 corvette that I bought brand new in 1978. But like Wincrasher, we can afford it. I don't trade my cars in until they start giving me problems.

[littleroc02us]

Originally Posted by Ima saver

I agree with Wincrasher. Dh and I are car nuts too. The cars are washed several times a week and have never had a scratch on any of them. I still have my 1978 corvette that I bought brand new in 1978. But like Wincrasher, we can afford it. I don't trade my cars in until they start giving me problems.

I'm sure a lot of us here could afford a $60000 Mercedes to with monthly payments, but is it wise to have to much money in a liability? IMO NO!!! Never unless your already a Millionaire and can afford depreciative items that won't digress your retirement investing. I have to also assume that some people don't really care about the retirement part and would rather drive a fancy vehicle. It's their choice.

[disneysteve]

Originally Posted by littleroc02us

I'm sure a lot of us here could afford a $60000 Mercedes to with monthly payments, but is it wise to have to much money in a liability? IMO NO!!!

I think you have to step back and look at the big picture, not just the car. Is 60K a reasonable amount to spend on a car? Personally, I don't think so, but others disagree. As I've said many times here, it comes down to priorities. We love to travel and sometimes spend 10K/year on vacations. Some people think that is crazy. If we stayed home instead, that would free up 10K/year that could go to something else, like a fancy car, but having a fancy expensive car is not something that we personally care about.

I know people who drive expensive cars but live very frugally otherwise because their car is their spending priority. I also know people who have beautiful homes and drive very modest cars because their car is not at all a priority.

[littleroc02us]

Originally Posted by disneysteve

I think you have to step back and look at the big picture, not just the car. Is 60K a reasonable amount to spend on a car? Personally, I don't think so, but others disagree.

I agree with your statement, but my point was that to spend that kind of money on a liability seems insane unless you make a ton of money. I mean someone who buys a 50k car and makes 1 million in salary is like me buying happy meal at McDonalds.

[disneysteve]

Originally Posted by littleroc02us

I agree with your statement, but my point was that to spend that kind of money on a liability seems insane unless you make a ton of money.

Just to be accurate, a car is not a liability. It is an asset. It just happens to be a depreciating asset. But so is your HDTV, your computer, your furniture and almost everything else that you own. That does not mean that you should buy the cheapest car you can. It just means that you should buy one that fits in your overall financial picture. I think you and I agree on that.

[littleroc02us]

Originally Posted by disneysteve

Just to be accurate, a car is not a liability. It is an asset. It just happens to be a depreciating asset. But so is your HDTV, your computer, your furniture and almost everything else that you own. That does not mean that you should buy the cheapest car you can. It just means that you should buy one that fits in your overall financial picture. I think you and I agree on that.

Agreed, sorry. An depreciated asset for sure, I just laugh when I hear that a car is an asset when basically every day you drive it you lose money on it and eventually you'll either get $2000 out of it in 8 years or eventually give it away as a donation. It makes it seems like its a wise investment or something.

[rj.phila]

i am personally of the mindset that a car should be bought in cash, or not at all, but that's just me....

agreed, if a 2006 car is not new enough, i'd say something is amiss there.... YMMV of course.

[greenskeeper]

Keep the 06, heck even next year it will only be 5yrs old. Still got at least 10-15 years of life left in it.

[nick__45]

I can I can swing a $60k car payment but I wouldn't think about doing that unless I win some lottery, which I don't play, or get some real estate windfall, which may happen 10-20 years from now. By that time, I don't think I want a $60k ( or $115k adjusted for inflation car) anymore. I did buy a $25k car when my salary was $45k but we were all stupid once whenever we buy brand new car as our first ever car. I am driving that one to the ground.

I don't buy cars worth more than $5k now and I don't mind dropping $2k into it for things it really need after purchase. Buying used has risks associated with with, no matter or brand or price range. Sometime you get lucky and sometime you don't. There are used vehicles out there in the $2k range that is more reliable than the much newer vehicles with less than 75k miles on on.

If I was you, I'll drove that 06 Mazda for another 10 years.

[nick__45]

Originally Posted by littleroc02us

Agreed, sorry. An depreciated asset for sure, I just laugh when I hear that a car is an asset when basically every day you drive it you lose money on it and eventually you'll either get $2000 out of it in 8 years or eventually give it away as a donation. It makes it seems like its a wise investment or something.

Cars can be asset and investment when they are used to get you to work safely and reliably days in days out. Without reliable transportation, you can't work; therefore, cars are essential investment vehicle in that sense. However, they don't have to purchased new and expensive unless your job calls for it. There are certain jobs that people have to drive newer or presentable cars. Realtors tend to drive newer cars but but the smart ones usually drive something durable and reliable in our weather such as a Jeep Cherokee or Grand Cherokee, Ford Explorer, something from Toyota or Honda or whatever that can get them to places comfortably and on time. My realtor was smart, he drives a used Dodge Caravan that he made she it is always washed, cleaned, and presentable even though it is a very old car. Dumb realtors buy Hummer H2 or Escalade that kills them in gas mileage showing clients around.