How much can afford to pay for a new car

[chaseb]

Pre-tax salary + bonus (no state tax) - $100,000
Cash savings - $12,000
401k - $20,000
Debt - $10k in student loans

If I had to get a new car tomorrow, what's reasonable?

[humandraydel]

$5,000.

[snafu]

What type of vehicle do you need? What features are 'must have,' deal breakers? Are you willing to do some research on used cars with the best operating statistics, least repair problems? [Lemon-Aid Edmond?]
Are you willing to do the leg work to buy private or much prefer certified from a dealership? [cost vs risk ratio]

...just things to consider

[kork13]

What type of vehicle do you need? What features are 'must have,' deal breakers? Are you willing to do some research on used cars with the best operating statistics, least repair problems? [Lemon-Aid Edmond?]
Are you willing to do the leg work to buy private or much prefer certified from a dealership? [cost vs risk ratio]

...just things to consider

If your car burst into flames & you had to replace it RIGHT NOW (not on a whim but a legitimate need due to a destroyed car).... Probably no more than $5k-$10k.

As snafu said, there are alot of other variables... Most importantly, what are your current monthly expenses? But if you have time to plan & prepare for a car purchase, I'd probably say you could comfortably get a $20k car, using at least $10k as a downpayment. However, I say that with this proviso: You need to dramatically increase your cash savings. $12k is likely only 2-3 months' expenses for you... you should have 6 months on hand, IN ADDITION to the money you would use for the car. You have an excellent income, so bulking up your cash emergency fund should be no problem for you. Build your cash savings to cover 6 months' expenses, then an additional $10k for buying the car (or more...preferably you'd want to pay in full with no car loan), and then I'd say go for it.

What would a dealer tell you? With your income & debt load, you could easily afford up to a $700/mo car payment (correlates to a $35k-$40k car). <<---- Bad advice

[disneysteve]

Pre-tax salary + bonus (no state tax) - $100,000
Cash savings - $12,000
401k - $20,000
Debt - $10k in student loans

If I had to get a new car tomorrow, what's reasonable?

What are your monthly expenses? How big of an emergency fund does that 12K represent? I would recommend keeping at least a 3 month EF and then using whatever savings you have beyond that toward the car.

Do you own a car now? How much will you get when you sell it? If you can use the money from your current car plus the savings you have in excess of your EF, I'd say that's a good amount to spend.

If you must borrow money, the rule of thumb is that your payment should not exceed 10% of your monthly income for no longer than 36 months.

[feh]

Spend what you need, not what you can "afford". Using salary to determine the amount to spend on a car is a very common mistake.

[bjl584]

It's nearly impossible to answer with the info that you provided, but I'll take a shot at it.

I agree that we need to know what your monthly expenses are. Does $12K represent more or less than 3 months' worth of expenses? If more, then you can take some of it and buy something for cash.

If you have to finance, then the rule of thumb is to not take out a loan for more than 36 months and not to have the monthly payment represent more than 10% of your monthly net pay. Keep in mind that those numbers are the MAXIMUM that you should do.

[JoeP]

If it were me, I would not consider a car loan unless I had all my other debt (sans mortgage) cleared up and had 6+ months of living expenses saved up in my emergency fund. If you absolutely need a car now for employment, pay cash for a cheap but reliable used car, probably $5k max. Research craigslist and have a competent mechanic give it an evaluation.

Further, we resist car loans completely. It makes a lot more sense to us to drive used cars and continue to pay ourselves for the time when we'll need to replace them with other used cars.

[myrdale]

The rule of thumb I have heard in the past was the sum of all your vehicles shouldn't add up to more than 1/2 of your total annual salary. That is assuming your debt free. Since 1/2 of $100k is $50k, and I'd probably take another $10k out of that because of your debt, you're now down to $40k.

I think the payments were about $350 for a $20k truck over 60 months. So I would assume for a $40k car you're looking at a payment of $700. I am guessing that is going to be a bit above the 10% others mentioned.

Now just because you can "afford" something doesn't mean you should.

While you do have a nice salary, I would still be looking to shop under my means. I am not of the opinion either though that you should be looking strictly for a $2000 beater either. Do you think you could continue with what you are driving and just save up to make a $25-$35k purchase out right? Additionally saving up would give you ample time to shop around for the best deal.

Please note that the estimate I used is a lot less conservative than the other posters. It is definitely on the high end.

EDIT I meant to state also, that while there is signification savings in purchasing a used vehicle, I am not against purchasing a new vehicle on the sole condition that you intend to drive it till the wheels fall off. The strategy of buying a new car every three or five years is an absolute mistake financially to me.

[Dylansmom]

Yea, I agree with the others here. Just because you can afford it doesn't mean you should get it. Try and live below your means.

[agarlits]

Pre-tax salary + bonus (no state tax) - $100,000
Cash savings - $12,000
401k - $20,000
Debt - $10k in student loans

If I had to get a new car tomorrow, what's reasonable?

Check this out.

The biggest issue with buying a new vehicle is that from the moment you sign the paperwork and drive it off the lot in all its new car glory it starts to depreciate like it’s on fire. Yeah it’s shiny, comfortable and smells nice but every mile you put on it after it's financed is decreasing its value. In fact, most new cars will lose roughly 80% of their value in their first three years. There are exceptions to this but for the most part buying a new car is like buying a house and immediately setting it on fire. Yeah it’s going to be colorful, warm and exciting at first, but when you’re done having fun its going be hard to turn around and get your investment back. Of course this doesn’t mean you can’t drive a nice car, it just means that from a financial standpoint it is a better decision to do your homework and save up a little. Start out by buying whatever you can afford in cash. There are a ton of people (especially around the holidays) that are looking to sell their old cars for cheap on websites like craigslist and eBay. You have to exercise caution when buying on one of these websites and as a rule of thumb if something doesn’t feel right when you go to meet the person to look at the vehicle just turn right around and leave. But for the most part it isn’t hard to find a good deal from an honest person on these websites. Having said that, if you can afford a $5,000 in cash right now and you can find a nice older car that’s worth your money, go out and buy it. After you buy it go by your financial institution and open an account, now nickname this your “car” account or something along those lines. After you do this pick a date and on that date every month go to your financial institution and put $300-$500 in the account just like you’re making a payment on the car. If you do this and stick to it with an initial value of $5000 on the car and $300 a month for 2 years you will have $12,200 plus interest to spend on a nicer, newer car. Now assuming that the car you upgrade to is 2 to 3 years old and has already depreciated approximately 80%, mathematically speaking it is going to hold its value pretty well for another 2 years, so that you can turn around and sell it again for $12,200. So after 2 more years of driving your 12 thousand dollar car around and saving $300 a month simple math tells us that you would have $19,400 to spend on a nicer newer car. So in four short years you have gone from a nicely used $5000 car to a nearly new $20,000 car without paying one cent of interest on a loan. If you can afford to save $500 a month instead of $300 the math is the same but every 2 years you will have $12,000 more for a nicer, never car instead of the $7,200 you have from saving $300 a month.

[chaseb]

Thanks everyone for your help. These are all good things to think about.

I was never considering buying a new car. Was hoping to get something around $30k but it isn't an immediate need. My current car has 120K miles on it though so it could go at any time Then again it's a '95 Lexus so it might go forever.

I'm working on figuring out a budgeting strategy.

• I contribute 6% (+3% employer match) to my 401k and 17% to an emergency fund for now. Net of these contributions I end up with $4,000/month.
  
• When I have enough emergency funding, I'll move the 17% to my 401k as well.
  
• Rent + Utilities run around $1,350. Gas and tolls is another $300.
  
• Another $1,460 went to other expenses in January - Around $800 in Food, restaurants and entertainment. About $150 on some stuff for my apartment which is probably a one off.

Any thoughts? Where should I be setting my budget for entertainment, food, restaurants and other expenses?

[breathemusic]

I'm probably a little less conservative than some of the other posters here. Depending on what type of credit score you have and the interest rate you can qualify for, and what else you'd be doing with the money that you otherwise would have used as a large downpayment, I don't really see any need to pay for a car in cash or put down a huge downpayment. for example, my brother just bought a car and he easily had enough money in cash to be able to pay for it. But he got such a low interest rate (don't remember the exact amount but it was pretty low) that he got a $20k ish car and put very little down. He said that he had other inventment vehicles where he'd rather keep his money that would either earn him more in returns than the interest on the loan, or even if he were just keeping it in a 1% savings account, the very small margin between that and the interest on the loan was worth it to him to be able to have that cash on hand for other purposes (given that he was in the middle of working a land purchase and other things).

In your case, depending on your student loan interest rates, why would you bank a bunch of money that's going to make crap interest for a huge car downpayment (just so you can avoid paying on a low interest loan) when you could be paying off higher interest student loan debt first?

Of course, this isn't taking into account that I agree with the other posters in that if your savings isn't at least 3 months expense, then you should still be working on that.

[chaseb]

I'm probably a little less conservative than some of the other posters here. Depending on what type of credit score you have and the interest rate you can qualify for, and what else you'd be doing with the money that you otherwise would have used as a large downpayment, I don't really see any need to pay for a car in cash or put down a huge downpayment. for example, my brother just bought a car and he easily had enough money in cash to be able to pay for it. But he got such a low interest rate (don't remember the exact amount but it was pretty low) that he got a $20k ish car and put very little down. He said that he had other inventment vehicles where he'd rather keep his money that would either earn him more in returns than the interest on the loan, or even if he were just keeping it in a 1% savings account, the very small margin between that and the interest on the loan was worth it to him to be able to have that cash on hand for other purposes (given that he was in the middle of working a land purchase and other things).

In your case, depending on your student loan interest rates, why would you bank a bunch of money that's going to make crap interest for a huge car downpayment (just so you can avoid paying on a low interest loan) when you could be paying off higher interest student loan debt first?

Of course, this isn't taking into account that I agree with the other posters in that if your savings isn't at least 3 months expense, then you should still be working on that.

I would definitely be financing assuming I can still get a good rate and I definitely agree with your logic. My credit score is around 800 so I should be in good shape.

[disneysteve]

Was hoping to get something around $30k

I would definitely be financing

I would strongly consider a more affordable car. How much could you spend without financing?