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Personally, I ask why would you spend a large percentage of your yearly income on a depreciating asset ?
The answer is usually the difference between investing and just squandering money.
You never realize it until the next business cycles runs it's sine curve downward, you have to take a pay cut, and you're stuck with an expensive car payment on a car that's not worth more then you owe on it.
It's just transportation and a roof over your head with a fixed monthly payment that isn't raised annually like the rent becomes much more of an attractive investment.
Just my honest opinion from watching what's happened in the past and what probably will repeat again.
I just came to this forum looking for insight re: buying a car on a limited income. I am interviewing for a promotion next week, need a car THIS week. It looks like the down payment is going to come from my insurance company. I can swing 10% for 4 years. But I can swing it a lot better if I get promoted! In fact, I may go for a longer loan and just pay double payments when I get promoted.
So I can buy a $10,000 car. I don't really know, if I was already making that higher salary, would I be comfortable spending more?
What happened to your old car? If totaled in a wreck, why don't you replace your old car with the same model/year you previously had (which should be covered by insurance settlement). 10% on a car loan seems very high to me.
It really comes down to how you like to/want to spend your money.
Question is not about how people would like to spend their money, it's about what is considered affordable by the mainstream consensus in terms of financial prudence.
What should be considered is the cost of ownership, not the MSRP of the cars being considered.
If a cheap car depreciates quickly, then the cost of owning it is going to be higher than a more expensive car that depreciates more slowly -- assuming other factors like fuel cost and insurance are held even.
Expensive cars that are considered status symbols may depreciate very quickly, because status-seekers are not that interested in cars that are 3 to 5 years old. And some cheaper cars really do not hold together that well, although generally speaking all cars are becoming more reliable. But they still wear out, and who wants to put money into a cheap econobox. Somewhere in between are most cars, some costing considerably more than others, but all depreciating at roughly the same rate.
Personally, I ask why would you spend a large percentage of your yearly income on a depreciating asset ?
The answer is usually the difference between investing and just squandering money.
You never realize it until the next business cycles runs it's sine curve downward, you have to take a pay cut, and you're stuck with an expensive car payment on a car that's not worth more then you owe on it.
It's just transportation and a roof over your head with a fixed monthly payment that isn't raised annually like the rent becomes much more of an attractive investment.
Just my honest opinion from watching what's happened in the past and what probably will repeat again.
For the same reason you don't eat ramen for every meal.
If I made 100K I would be very sad to have to drive a Corolla or similar automobile.
I'm not saying the advice is bad, because it would be a wise decision, but I would still be unhappy.
Different strokes of course. I make over that income threshold and still drive the first (and only) car I've ever owned (2002 Pontiac Grand Am) because it still runs after 13 years. Obviously I understand that some people enjoy various aspects of cars that I don't.
Quote:
Originally Posted by k374
Question is not about how people would like to spend their money, it's about what is considered affordable by the mainstream consensus in terms of financial prudence.
Each person's perspective is going to tend to skew what's considered affordable or reasonable. Same reason you'll get some people who say 'cash only' or 'pay off the loan within 1-2 years' even though lots of car loans are low enough to justify investing that money elsewhere versus paying off a <2% loan.
Was having this discussion with someone...I was of the opinion that you shouldn't buy a car more than 25% of your annual gross income IF you have no debts besides a mortgage. If you have debts that number goes lower.
So, if you make $100,000/yr with no debts then buy a car for $25,000 out the door, i.e. a Toyota Corolla LE or similar. If you make $150,000/yr perhaps a Acura ILX or similar.
Someone else thought that was ludicrous! He thought a person with average debts ($500-600/mo.) and income of around $40,000 can easily afford to buy a car for $30k otd.
All above assuming single/married household with typical living expenses (rent, utilities, discretionary etc.)
I don't think it's as simple as a straight percentage. For example, someone taking home $100K and spending $25K on a car has $75K remaining for everything else. Someone taking home $200K who spends $50K on a car still has $150K remaining. The amount of disposable income you have available for things like cars isn't a fixed percentage of income. Disposable income becomes a higher percentage of your income as you earn more. We purchase things with dollars, not percentages.
For example, my take home pay (after taxes, insurance, 401K contributions, etc.) is around $10K per month. After paying my mortgage (including taxes and hazard insurance), I have $6,800 left for everything else (including cars). My sister takes home about $2,300. After paying taxes on her paid-for house (it was given to her), she has $1,800 left over for everything else. If she spent 25% of her gross income on a car, it would be about $10K. At 0% for 5 years, that's $200 per month, leaving her with $1,600 for everything else - which makes for a very tight budget. I, on the other hand, spent $84K on a car, which represents over 42% of my gross income. At 0% for five years, that's $1,400 per month. Even with my much larger mortgage, I have $5,400 remaining each month vs her $1,800. So even though I spent a much higher percentage of my income on a car (40% vs 25%), my finances aren't stretched at all, whereas she has to watch every penny.
No its not ideal. There's enough (nutrients) to survive on it, just like a big mac and a Hyundai (two things I CHOOSE to have better than). Let me guess, you prefer bread and water?
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Let me guess, you prefer bread and water? 
