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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.)
It really comes down to how you like to/want to spend your money. Some people like to have a large house and a 10yr old cheaper car. Some people like to have a newer more expensive car and less house. Some people want to have the best newest of everything and be in debt up to their eyeballs. It really just comes down to what you want to spend your money on. I dont think there is any specific formula.
Personally I just have a cap of $25k as it seems silly to throw more at something that depreciates so quickly and you can find some nice new or quality used vehicles well within that price. 20% down, no longer than 4 years, and 10% of income is what my father drilled into me. Of course that dates back to the days before 0-2% loans being the norm.
But with the average price of cars cresting $33k and 5 year(and longer!) loans being the norm the answer most seem to be settling on is just debt up to their eyeballs.
If someone is buying with cash, then how much savings he has matters; income is irrelevant.
If on loan, then putting some rule on total debt as percentage of income might make sense. But as other poster mentioned, there are so many other variables that it is unrealistic to put a # just for car and have that work out for everyone.
It really comes down to how you like to/want to spend your money. Some people like to have a large house and a 10yr old cheaper car. Some people like to have a newer more expensive car and less house. Some people want to have the best newest of everything and be in debt up to their eyeballs. It really just comes down to what you want to spend your money on. I dont think there is any specific formula.
Quote:
Originally Posted by notnamed
25% is awful high in my opinion. Number I've always heard was 10%. And that's what a google search for 'how much to spend on car income' pulls up.
Personally I just have a cap of $25k as it seems silly to throw more at something that depreciates so quickly and you can find some nice new or quality used vehicles well within that price. 20% down, no longer than 4 years, and 10% of income is what my father drilled into me. Of course that dates back to the days before 0-2% loans being the norm.
But with the average price of cars cresting $33k and 5 year(and longer!) loans being the norm the answer most seem to be settling on is just debt up to their eyeballs.
I just wanted to say, great job on being the only two not trolling and actually trying to help so far.
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Car manufacturers and their dealers, more so the lenders depend on people buying more car than they can afford. That's why the 2-3 year loan of the 1970s is now the 5-6 year loan, or more, to make the payments lower over a longer time. More profit for the car maker, more interest for the lender. Like mortgages, the payment should be within the buyers budget but also a short enough period to ensure its always worth the amount owed until paid off. The price of the car doesn't matter as much as the amount of the loan. If the person making $40k can put down $20k, and get a low interest loan for 48 months with payments they can afford, why not buy a $40,000 car?
25% is awful high in my opinion. Number I've always heard was 10%. And that's what a google search for 'how much to spend on car income' pulls up.
Personally I just have a cap of $25k as it seems silly to throw more at something that depreciates so quickly and you can find some nice new or quality used vehicles well within that price. 20% down, no longer than 4 years, and 10% of income is what my father drilled into me. Of course that dates back to the days before 0-2% loans being the norm.
But with the average price of cars cresting $33k and 5 year(and longer!) loans being the norm the answer most seem to be settling on is just debt up to their eyeballs.
Thanks for this formula!!!
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?
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