Buying a car is the second largest purchase one can make, next to a home. Many personal preferences, and the needs of your lifestyle, factor into the actual selection of the vehicle. However, with a few simple calculations, deducing how much you can put toward the monthly payment can be easily determined.

Debt to Income

Before you can reach a final monthly car payment number you'll be able to live with, you must first calculate the total of all your monthly debt payments. This should include your mortgage, credit card payments, student loans or any other loan-based payments you need to make on each month. Once you've calculated your monthly debt, take that number and multiply it by 12 to reach your annual debt.

Percent that makes sense

Consumer Reports advises that your annual debt not exceed 36 percent of your gross yearly salary. Once you've determined the total of your annual debt, subtract it from 36 percent of your annual gross income. Hopefully, you have a sizeable chunk of money left over. Divide this remainder by 12 and you'll know how much you can spend. Keep in mind, overreaching on a car payment can become a burden in and of itself. Most cars also depreciate rapidly, so the larger the loan debt you incur, the greater the chance you'll roll some of this debt over into your next vehicle.

If Remainder's Not Enough

If you simply must have a certain car that would put your debt beyond the 36 percent barrier, or closer to it than you feel comfortable, you can simply raise the amount of your down payment. While most people only think of trade-ins and cash on hand for down payments, there are various ways to produce more cash to put down on your car. Selling other items at a yard sale, on eBay, Craig's List or through personal networks can raise money quickly. Another avenue is to check with the dealership you're purchasing from and see exactly what they'll take in trade. Most will consider cars, trucks, motorcycles, RVs, trailers and anything with wheels. Some will also take jet skis, snowmobiles, boats or most any other mode of transportation. Either way, it never hurts to ask. The more you put down up front, the less you'll have to pay out each month.

Remember the fine print

Many people forget to factor in the cost of taxes, title and license, as well as insurance, when exploring the new payment on a vehicle. Depending on the state you are in and the type and value of the vehicle you're purchasing, these added expenses can easily add 10 percent to the purchase price. Check with your insurance agent and salesperson to verify these numbers before finalizing your purchase.

Source:

ConsumerReports.org: Car Buying Advice