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What % of income should go towards car payment?

Boglehead 998 118 February 23, 2011 at 09:09 AM
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I will be purchasing a car in the next year or so (haven't decided if I'm buying new or used). I've always bought pretty basic Japanese cars and driven them for 7-9 years. But I'm considering upgrading for my next purchase (possibly looking at Audi, Lexus, Acura).

What is the guideline for what percentage of your take-home monthly pay should be going towards a car payment (I'm only talking loan- no insurance or gas)? I will probably do a 5 year term, especially if interest rates are low.

I know other debt payments is relevant. Right now 33% of my take-home goes toward mortgage, and 3% goes toward student loan. The remaining 64% goes towards general living expenses and savings.

Given these stats, what % would you be comfortable with going towards car payment? If I were to buy a nicer car, I'd also have to consider higher insurance, gas prices, etc.

Appreciate any input.

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#2
are you looking for a lender's perspective? I don't know that they make any hard income calculations...........?
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#3
Save $1000/month & you can get something pretty decent in 1 yr for $12000.
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#4
Quote from TonyTouch View Post :
Given these stats, what % would you be comfortable with going towards car payment?
Me personally? 0.0%. Don't forget that you will be paying extra maintenance costs as well. Why not save up and pay cash?
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#5
Quote from Count_Chocula View Post :
Save $1000/month & you can get something pretty decent in 1 yr for $12000.
Quote from Jabbit View Post :
Me personally? 0.0%. Don't forget that you will be paying extra maintenance costs as well. Why not save up and pay cash?
Iagree

Not only do you pay more for the car with interest, but usually the finance/bank wants you to have collision insurance that you probably don't need on a used car. Maintenance, unless you buy a used lemon, is usually pretty low on a used car that you pay cash for as opposed to financing a new car and getting a warranty. The worst used lemon I had (a mitsubishi), I spent $300 to $600 every 6 months replacing this and that. Still cheap compared to interest and extra insurance.

I have never bought a new car, or a financed car. Probably never will. My shortcomings aren't so short, and thus I never needed to compensate for anything with shiney big new expensive toys I couldn't afford. I cant even begin to calculate how much $$$ I've saved over the years. Well, except for all the extra dough I was able to put in my 401K because I wasn't making car payments. I won't get into how much that is, because I'd hate to see you cry... bounce
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#6
cash is king when it comes to cars.
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#7
Quote from TonyTouch View Post :
What is the guideline for what percentage of your take-home monthly pay should be going towards a car payment (I'm only talking loan- no insurance or gas)?
I think it is a mistake not to include the total cost of ownership of the vehicle when determining how much car you can afford. Your annual vehicle registration alone is going to skyrocket going from a low priced 7 year old vehicle to a brand new higher end vehicle.

Me personally, when I paid off the last car I had to take a loan out for, I simply continued to put that payment aside in preparation for the next vehicle. Then drove the car into ground. Paid almost all in cash for the next one, rinse, repeat. Despite my increased income, my car budget hasn't changed a whole lot.
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#8
0.00%

Sucks the life right out of you. Worst investment besides a Freeze machine Siberia.

I stared saving last year for a new (to me) vehicle purchase in 3-4 years. Pretty much already have it picked out, just have to wait till my current car starts to STB; then I wait till I find the perfect replacement and fire off a check. Who thinks like this? No one. How many people are broke, again?
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#9
Quote from travathian View Post :
I think it is a mistake not to include the total cost of ownership of the vehicle when determining how much car you can afford. Your annual vehicle registration alone is going to skyrocket going from a low priced 7 year old vehicle to a brand new higher end vehicle.
I remember the first time I found out some states charge registration based on car value. Man, no wonder car makers needed a bailout from no one buying new cars. Smilie Even in states without such a sliding scale, insurance does need to be factored in.

Anyway, as a couple people have said, the answer to the OP's question is "as little as possible." nod
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#10
if you ask your car dealer finance guy = they want 25% of your income going to a car loan.

if you ask me, 15% of income should be your max.

dont forget oil changes, fuel cost, insurance and the occasional ticketsssss


if buying a car, buy a year or 2 year old cars to save some money.


infiniti = great design but worst resale value compared to lexus / acura

lexus = reliable as toyota but plain and beige boring

acura = great resale value, reliable, don't like their designs


Audi = quattrooooo, slick, not as common as bmw, high cost of maintaining. parts ordered from Germany, car in the shop whille part is being shipped from Germany, no more no more no moreee... Smilie

just my 2 cent
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#11
As all (both) of my friends who sell Acuras and Lexus's (Lexi?) have told me, Just buy a Honda or Toyota and drop 20k to make it the way you want it. And if you go to the dealer for maintenance, go to a honda or toyota one, they are cheaper for the same thing.

Lexus tends to make RWD cars, which are more fun to drive and you can't find in a Toyota.

Just get an old muscle car and call it a day.
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#12
Quote from travathian View Post :
Your annual vehicle registration alone is going to skyrocket going from a low priced 7 year old vehicle to a brand new higher end vehicle.

.
Depends on what state you're in. Here in Michigan the registration fee is based on original MSRP with only small decreases for the first three years. I'm paying almost $100 a year for a car that probably isn't worth $1,000 anymore.

Quote :
License plate fees for 1984 and newer model year passenger vehicles and light trucks are calculated using a percentage of the manufacturer's suggested retail price (MSRP) at the time the vehicle is first titled. This is also known as the base price or window sticker price before any taxes, options, and destination charges.

The plate fee decreases by 10% each year for the first three annual plate renewals, after which the fee no longer changes as the vehicle continues to age.


To the OP - if you have the cash, pay cash.


Quote from barnz008 View Post :
I stared saving last year for a new (to me) vehicle purchase in 3-4 years. Pretty much already have it picked out, just have to wait till my current car starts to STB; then I wait till I find the perfect replacement and fire off a check. Who thinks like this? No one. How many people are broke, again?
That's what I always do.
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Last edited by Shellac February 24, 2011 at 09:20 AM
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#13
I would say < 10% if you must have a %, but do consider what the above posters have said, and be ready to pay extra for premium gas/insurance/license fees as well
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#14
Buy a motorcycle and keep running your old car. More fun, more "cool factor", more "chicks diggit" factor, magnitudes faster, magnitudes cheaper, and it will make you an all-around better person.

Strictly financial facts:

Bikes are way better on gas (even a bike that is faster than every Ferrari ever produced will still yield 35-40mpg)
Insurance is dirt cheap, especially is you buy your bike outright
You can use all HOV lanes and stuff (not sure if this applies to your current living area, but it's huge in major metro areas)
Easy to park
Easy to cut through traffic (especially if you can lane-split/filter)
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#15
Quote from discoverEdeals View Post :
Buy a motorcycle and keep running your old car. More fun, more "cool factor", more "chicks diggit" factor, magnitudes faster, magnitudes cheaper, and it will make you an all-around better person.

Strictly financial facts:

Bikes are way better on gas (even a bike that is faster than every Ferrari ever produced will still yield 35-40mpg)
Insurance is dirt cheap, especially is you buy your bike outright
You can use all HOV lanes and stuff (not sure if this applies to your current living area, but it's huge in major metro areas)
Easy to park
Easy to cut through traffic (especially if you can lane-split/filter)

Easy to get hit and die too.

... that doesn't stop me from riding however laugh out loud
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