It’s the first question for a reason – there’s no sense getting all worked up about a car you can’t afford. So save yourself some disappointment and use the following steps to figure out a payment amount you can handle before you start looking.
Break out your budget: You do have a budget, don’t you? (If not, you shouldn’t be shopping for a car – not yet. Click here for a guide to budgeting.) So open that budget up. How much room is there for car costs? $200 a month? $300? Remember, you don’t want to torpedo your savings.
Pay attention to the details: Okay, so you’ve got a number. But don’t get too excited just yet. A car costs more than just a car payment. You’ve also got insurance, maintenance and gas to think about – and none of those are cheap. In general, operating expenses can be as much as one third to one half of the monthly cost of a new car. So whatever you settled on in the first step, multiply that by .66. Now you know what kind of payment you can afford.
Last but not least: Oh yeah, one other thing. You’re going to need to come with a little cash up front. Or a lot of cash. How much? The more the better.
It’s a pretty simple concept: a dealer isn’t going to let you drive away with a machine worth thousands of dollars on the strength of your firm handshake and warm smile, no matter how firm or warm. They want to see some thing tangible – something green – that demonstrates your commitment to make all the payments.
We’ll get into the down payment in greater detail later, because the size of that payment will affect financing terms you can get. For the moment, just be aware that you’ll probably need to make a down payment of around 10% of the total price of the vehicle.
There. Now you know
what you can afford. Still with us? Great, let’s move on.