How much car can I afford?

That’s a common question asked by many of our readers. Here are a few important things to consider before you apply for a car loan and shopping for the right vehicle.

Most financial advisers agree that the cost of the vehicle should not exceed 20% of your income.

The 20% value includes all cars you have. So, even if your home is paid for and you are caught up on all your bills, it’s best to ensure that your car payments do not exceed 20% of your income. The reason being that cars are considered a bad investment: they lose money and depreciate.

How much car can you afford… really.

When determining the car payment, ensure that you include the purchase price of the vehicle, the interest rate, all fees, insurance, and taxes.

Exceptions to the rule…

A few exceptions to the 20 percent rule are young adults that live with their parents and have no mortgage, or other expenses.

Down payments

Down payments are essential proof that you can afford the car. If you can’t afford to pay a down payment, then you might not be able to afford the car.

Fuel (Liquid Gold) and Maintenance

With the cost of fuel these days, you must factor in the cost of gas. Also, research the insurance costs on the vehicle(s) you are considering. Sports and luxury cars take more to maintain and often require more fuel than the less costly vehicles.

Green vehicles

Gas / electric cars have their pros and cons. Yes, they are friendly to the environment and have better fuel efficiency, but they also cost more… both in terms up front cost and maintenance. So, be sure to research maintenance costs before opting for a hybrid vehicle, especially if maintenance costs will have a serious impact on your budget.

Source: BankRate