How do you decide how much you want to spend on a car?

**disneysteve** · 12-14-2009, 11:25 AM

I'd say the rule of thumb should be pay cash if you can. If you must finance, borrow no more than you can comfortably repay in a maximum of 3 years. People who are buying with 5 or 6 or 7 year loans are buying cars that they shouldn't be buying.

**ScrimpAndSave** · 12-14-2009, 11:40 AM

Thanks Steve,

If I do finance, I am planning on going with my credit union. They are offering 4.49 interest rate for 3 years. I think that is pretty decent. I just need to figure out whether it makes sense for me to keep this car or not.

If I finance $10,000 for 3 years at 4.49%, my monthly payment will be about $300. I can easily afford to pay $600 and double my car payment to get rid of the debt quickly.

**jIM_Ohio** · 12-14-2009, 12:07 PM

Financing cars makes sense IF some or all of the following financial guidelines apply

1) You finance a car which you will keep for a long time (10 years?)
2) Your finance term is short (3 years or less)
2a) means the payment is high, or you put money down on the car
2b) the finance rate is relatively low (below 5% is a must, and lower is better).

My personal goal is any time I finance a car, the next car is financed for 1 year less. Eventually this means I pay cash for a car. Car budget keeps increasing, and the payoff comes much faster.

I can show numbers if needed, but if you are looking for what you can afford, think high payment, low period of time.

$800/mo for 36 months (30k car) is much better than $500/mo for 60 months (30k car) because you gain 2 years of no car payments which gives you flexibility in month to month budgeting faster.

**kork13** · 12-14-2009, 12:17 PM

I'd say that it can't hurt to at least try to sell it. Figure out a price you'd be happy with accepting, put it on the market (classifieds, etc.), and see what bites you get. If you get a satisfactory offer, go for it. If no one offers, or you don't get an acceptable offer, then you can keep it.

Really you just need to ask yourself why you want to get a new car. Are you no longer happy with the BMW? Is it becoming too expensive to validate continuing maintanance? Are you just ready for some new wheelz?

You know the arguments for driving a car into the ground, so I won't waste time there... If it works well for you and you're still happy with it, I'd say just keep it until it dies (unless you get a good offer to buy it). But if it's truly time to replace it, don't rack yourself with indecision over it.

As for how much to spend on a car, I'd say just do whatever you're comfortable with, whether that's a $10k used accord, or a brand spankin' new $40k BMW. Figure out what you can really afford, what you're looking for in a new car, what your long-term plans are for it, and what you're willing to pay for it. All that really matters is that you're happy with it and that you will be 5-10 years from now when you're still (hopefully) driving around in it.

**MonkeyMama** · 12-14-2009, 01:52 PM

I personally pay cash for cars. (I have had wonderful luck with very used vehicles).

I would consider financing a car for a year or less (& certainly have).

**GREENBACK** · 12-14-2009, 01:53 PM

S&S

I would look for a late model version of the same car(assuming you like it) and pay cash if possible. Your previous posts seem to indicate that you're financially well off enough to do so.

Think of your next car as an investment because that's what it is in the short term. I would pay as much as possible towards the purchase if it didn't impact other financial obligations, i.e. EF, investments, bills, etc..

**zetta** · 12-14-2009, 04:13 PM

What is your reason for considering selling now?

Why not keep the current car for 2 more years, and save aggressively to pay cash for your next car? You said you could handle $600/mo -- that would get you a $15k car in 25 months time. I don't think your car will depreciate fast enough to make it worth being in a hurry to sell sooner.

If there isn't a pressing reason to sell now (such as the car breaking down), I wouldn't finance unless you can earn more interest in the bank than you would pay on the car loan. I'm not excited about the 4.49% rate -- when the automakers are having trouble selling cars, they often advertise rates around 2-3%.

The only car loan I have taken was for 1.9%, when we needed an extra $7k to get the car that DH really wanted instead of one he didn't really care for, and the savings account was earning 2.5%.

As for how much car to buy, that's personal preference. I would think about what is the cheapest car that you would be happy with driving for at least 5 years. (Personally I look for the car I can be happy with for 10 years, but for someone in their late 20's life and what you need from a car can change a lot in that timeframe.)

**disneysteve** · 12-14-2009, 04:59 PM

Originally posted by zetta View Post

Wfor someone in their late 20's life and what you need from a car can change a lot in that timeframe.

I suppose that's true, though I'm essentially driving the same car I've had since I was 18 and I'm 45 now. I've had a Datsun Maxima and 2 Toyota Camrys. My 14-year-old daughter doesn't even remember my last car because she was only 2 when I bought my current Camry.

**maat55** · 12-14-2009, 05:52 PM

IMO, debt means risk. I only pay cash now, which means I can only afford what I can buy with as much as I have saved. If I want more car, I will have to wait longer.

Financing always includes risk and getting less for your money.

**ScrimpAndSave** · 12-14-2009, 05:52 PM

I really don't NEED to sell now...but my car does have some issues...something about an upper right control arm that needs to be replaced...it is connected to a wheel or something? It is a $300 a repair, but I don't think that is anything that would force me to sell the car.

My dad is just saying that I can either sell now and get $5,000 for my car...or run it to the ground and not be able to get anything for it in two years. I do love the car and it serves me well. It's old, but it is very well kept and nice looking...I'm just trying to make the best decision possible.

**project15** · 12-14-2009, 06:47 PM

In 2 years, someone will still pay $3k-4k for that car - you won't be getting nothing for it. Right now, $5k for a 98 BMW seems like a good deal from what I've been seeing on craigslist recently. Some BMW loving kid somewhere will give you $3k for it no matter how beat up it is. I bet if you even kept it for another 4 years, you'll still be able to get close to $3k out of it.

**cschin4** · 12-15-2009, 01:17 AM

I'd say the rule of thumb should be pay cash if you can. If you must finance, borrow no more than you can comfortably repay in a maximum of 3 years. People who are buying with 5 or 6 or 7 year loans are buying cars that they shouldn't be buying.

I know that is the common wisdom, however, I have tried both ways and I really don't think paying cash is the way to go. Let me explain. First, I did pay cash for my last car, a new 05 Sienna in 2005. That was a pretty hefty chunk of cash. It is paid off. However, having done that, from now on I would finance a car unless it has some ridiculous interest rate. That outlay of cash to buy the car could have served me better to be invested. To us, it seems to make MORE sense to finance our car, and instead put more money toward the mortgage which had a higher interest rate than the car did. So, when we bought our 4Runner we financed it for 5 yrs at a very low interest rate and aggressively paid off our home mortgage.
I also disagree with the notion that you should only finance over 2 to 3 yrs. Why? Something called "new car fever" seems to hit people as they are nearing the final payment. If you are a person who tends to experience this (as I do), opting for the longer payment like 5 yrs helps to quell this idea!

As for "easily" affording $600 a month. You shouldn't buy a car based on what you can "afford" per month. You should not even be looking at the monthly payments, you should be looking at the purchase price of the car and decide what you realistically want to spend.
And, there is nothing wrong with buying a nice car either. You dont' have to drive some beater unless you need to financially. I upgraded and bought a brand new minivan when they came out because I wanted side impact airbags which was hard to find on many of the older used minivans. Also, I wanted leather seats and some other options. And, there is nothing wrong with deciding you want a car with a moon roof or other options. But, if you really want a car with all the whistles, you might want to look at used and buy an upgraded used version to get all those things like leather, power seat, etc.

**LivingAlmostLarge** · 12-15-2009, 04:46 AM

CSCHIN makes interesting points about the car loan versus the mortgage.

**ScrimpAndSave** · 12-15-2009, 05:07 AM

I am not looking to "afford" a monthly payment. I said that if I borrowed $10,000 over three years it would be roughly $300 a month...and then I could double the payment to $600 so I can pay the car off early.

Just clearing that up. A $600 car payment over 3 years is absurd to me.

How do you decide how much you want to spend on a car?