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How Much Car Can You Afford?
If recent car buying advice has your head spinning, you're not alone. In an uncertain economic climate, conflicting messages can reassure you one minute and cause worry the next.
In the days of easy credit, consumers were urged to finance at the top of their comfort zone. If you're now on a more practical path, you want a deal that doesn't max you out. Our all-new guide can get you started:
Budget. Set a target dollar figure and run it through a car loan calculator to get an idea of the monthly payment. Before the economy took a plunge, personal finance experts suggested that a total household car budget — whether you're paying for one car or three — should be about 20% of net income. Today, you may feel more comfortable at a more modest figure.
The cost of owning a car doesn't stop at the sticker price. Your budget needs to factor in total ownership costs, including insurance, as well as fuel and maintenance costs. Calculators like True Cost to OwnSM on consumer advocate site edmunds.com can help you see the whole picture.
Financing. A pre-approved loan puts you in control. Dealers know you can take your loan anywhere and may offer a lower price and even better in-house financing. Making a significant cash down payment – at least 15% – will lower your monthly payment and prevent you from getting "upside down" – owing more than the car is worth.
New vs. used. The shine and new car smell... we still like it. Dealers are offering thousands off, and they're not stopping at gas-thirsty trucks and SUVs. Ask about cash rebates, free gas, entertainment systems and other incentives on top of the dealer's best offer.
You can save up to 30% off of new car prices just by crossing over to the used lot for cars that look and drive like new. Look for certified pre-owned cars with the manufacturer's warranty. Know the NADA and Kelley Blue Book values and ask for the vehicle history and the certification inspection sheet.
Is leasing still around? Once popular, leases lost their luster for some drivers, frustrated by mileage penalties and balloon payments. Still, there are advantages, like zero maintenance and no trade-in hassles. Leases can be good for business owners and people who prefer new cars every two to three years.
 

 

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posted 1/26/2010

 

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