How much should you spend for a used car?

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Choosing a car can be a daunting task, especially when you feel that the salesperson is not taking your financial situation into consideration. It is important to establish a price before setting foot on a lot, or taking a car for a test drive. Having a set value will put you in control of the sale and ensure that you do not end up with more car than you can afford.

Calculate One-Third of Your Annual Income

Personal finance expert Manisha Thakor believes that the cost of your car, whether it is new or used, should not exceed one-third of your annual household income. If you or your significant other lacks job security, it is best to err on the side of caution rather than purchase an expensive car that you cannot afford on one income. If your car is repossessed, it stays on your credit report for seven years. Whenever you apply for a loan, the company will pull your credit and be able to see that you have missed payments resulting in a repossessed car.

Compare Interest Rates

Bear in mind that the higher the interest rate, the higher the monthly payment amount. Consider getting pre-approved for a car loan and then using an online calculator to determine the monthly cost of the car based on the lowest interest rate for which you qualify. If you wait to finance at the dealership, you might end up with a higher interest rate and a higher monthly payment that you anticipated.

Getting the Best Car for Your Money

If you spend all of your money on a lemon, then you have wasted what could have been spent on reliable transportation. Philip Reed, Senior Consumer Advice Editor at Edmunds.com, stresses the importance of doing your research before you sit in the driver's seat. Run a vehicle history report to find out if the car has been in previous accidents that could affect its future performance or safety. Enlist the help of a friend or family member who is knowledgeable about cars to take a look under the hood. Find out if the car comes with a warranty. Sadly, these calculations are all for naught if the car turns out to be a dud and requires costly maintenance every other week.

Source:

Five Things That Consume More Than 50% of Your Income

ConsumerReports.org: Car Buying Advice

10 Steps to Buying a Used Car

Resource:

Auto Loan Calculator

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How much should you spend for a used car?

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