Buying a car is a major decision, and you need to plan carefully before making a final decision. One of the most critical parts of the process is deciding how much car you can really afford. There are many considerations when determining the optimum price of your new set of wheels.

Add All the Costs

Keep in mind that the cost of owning a car does not end with the monthly car payment. You also need to consider things such as the cost of insurance, the cost of gas and the cost of maintenance. Even if your new car comes with a comprehensive warranty, you still need to budget money for oil changes and other scheduled maintenance. Also keep in mind that you will need to carry comprehensive and collision coverage on your new car, and that could increase the cost of your monthly premium.

The Right Amount

Financial experts, such as the editors of CNN Money, recommend that your monthly car payment not exceed eight percent of your monthly income. So if your monthly income is $2,000, the maximum car payment you should take on is $160. Keep in mind that this is the maximum recommended car payment; if you can find a car for a lower payment, so much the better.

Loan Terms

Many people try to keep their car payments low by increasing the length of the loan, but this is not always a smart strategy. When you increase the length of the loan, you do more than increase the total amount you pay for your new set of wheels. You also increase the odds that you will end up upside down on your loan. Owing more on your loan than the car is worth is an untenable position, and if the car were to be totaled in an accident you could be on the hook for the rest.

Source:

Car loan guidelines

How much car can you afford?