Buying a Car

Buying a car is like jumping into a lake. Without some planning and research into what you might encounter, you could be in too deep before you know it.

Relax. You're going to be prepared. If you take the car buying process one step at a time and put some time into researching your purchase and your finances, it will go much more smoothly.

What Can You Afford?
There's no sense getting all worked up about a car you can't afford. So save yourself some disappointment and figure out a payment amount you can handle before you start looking.

Start with your budget. (You do have a budget don't you?) How much room is there in your budget? Could you, for example, fit an extra $200 a month in your budget without strapping yourself too much or eliminating your savings? If so, can you fit an extra $300 a month in your budget? No? How about $250? Continue that process until you have a general idea of how much extra room you have in your budget. That's how much you can afford to pay for a car every month.

Operating expenses can be as much as one third to one half of the monthly cost of a new car. So take the amount that fits in your budget and multiply it by .66. That is the most you should consider spending on monthly payments for the vehicle to be able to afford operating expenses as well.

Down Payment
This is going to hurt so let's just get it out of the way - you're going to need a big chunk of change for a down payment. How much? The bigger the better.

A dealership isn't going to give you a car with only a signature as a promise you'll pay for it later. But cash is a great symbol of your commitment to make all the payments. That's the basic idea of a down payment.

To get a loan for a car, you'll probably need to make a down payment of around 10% of the total price of the vehicle. The larger your down payment, the smaller your monthly payment will be and the less you will pay in total for the car in the long run. But make sure you don't cripple yourself or deplete your savings account with too large a down payment. Find a comfortable balance