How Much Car Can You Afford?

So you finally decided to buy your dream car. Maybe it’s that shiny red sports car – you know the one that looks like it is going 500 mph even when it’s standing still. Or, maybe it’s that heavy-duty off-road behemoth of a pickup truck – the one capable of hauling a gazillion tons.

Whatever the case, everyone has a dream car. The trick is determining whether you can really afford it.

How much should you pay each month?

Too many car buyers overestimate how much they can afford each month. In reality, your car payment should not exceed 10% of your monthly take home pay – and ideally it really should not be more than 5%. Take note: this includes all your car payments – regardless of whether you are paying for one car or three.


At, we offer a car affordability calculator.  Simply enter in how much you would like to pay each month, along with a couple of other minor details (like interest rate and the amount of money you are putting down), and we can help approximate a price that matches your budget.

How much is the new car really costing you?

A monthly car payment is just the beginning. Buying or leasing a new or used car is also accompanied by a host of additional expenses, including:


  • Insurance: If you are taking out a loan on a new or used car, you will probably incur a higher car insurance rate.  Before you sign the final paperwork, call your car insurance company to determine the insurance rates for that specific vehicle.
  • Impact at the Pump: Are you trading in a compact car for a larger family sedan? What you are paying at the pump might end up costing you more than you suspect. Visit FuelEconomy.Gov  to compare the fuel efficiency between vehicles.
  • Unscheduled (and even scheduled) Maintenance: For used cars, simple maintenance items, like new tires, tire rotations, oil changes and wiper blades, may require your attention sooner than you suspect. Even if you are buying new, your vehicle’s scheduled maintenance requirements will be a noteworthy monthly expense.


Remember: being approved for a new or used car loan  is not the same as being able to afford a new car. Before you agree to any monthly payments, take the time to ensure that this new expense won’t stretch your bank account.


The Value of a Vehicle History Report

A vehicle history report from a reputable source offers a quick glimpse into how a vehicle was used after leaving factory floor. This is an invaluable tool for the car buyer, and it has become a critical part of the used car buying process. Just a few of the items a vehicle history report provides insight on include:


The Title


  • Validity of the Title: Through the Vehicle Identification Number (VIN), the history report may be able to identify if the vehicle was stolen or if the title is fraudulent


  • Major Accidents: Vehicles in major car accidents are sometimes reported as salvage to the state.


  • Lemon: New cars that are bought back by the dealer due to mechanical problems are issued a lemon title. A vehicle history report may offer insight into lemon history and reported lemon titles.


  • Flood: Cars that have suffered flood damage are sometimes moved to other states and sold to unsuspecting customers. If the used car you are interested in buying has had flood damage reported to the state, this may be listed in the history report.


History of Ownership


  • Number of Owners: Statistics prove that there is the fewer owners a used vehicle has the more reliable it is. History reports like CARFAX® will show you exactly how many owners the vehicle has had.


  • Rental or Fleet: Was the car used as a rental or part of a fleet? If it has been, it may have been abused or driven carelessly by previous drivers.


  • Odometer Reading: Many history reports will report on the last odometer reading reported to the state


Accident History


  • Total Loss: If a vehicle has been reported as a total loss, it is thought to have suffered severe damage. Knowing whether a vehicle has been declared a total loss helps you avoid a potentially unsafe vehicle.


  • Salvage History: A Vehicle that with a salvage history has had severe damage. Having access to this information helps consumers avoid purchasing a potentially unsafe vehicle.


At we have partnered with CARFAX to offer a vehicle history report for all our premium listings. You can also search for  the history of a vehicle by visiting



What to do before going to the dealer

Too many first time car buyers make the mistake of showing up to the dealership unprepared. They fail to do their research, and only have a vague idea of the type of car they intend to buy. Worse yet – instead of coming prepared with a list of questions and key features that they are looking for, their only plan of attack is to “look around.”


The reason this is such a big mistake is that the car buying process is, in reality, a business negotiation. And like all negotiations, both sides are capable of walking away happy – you just have to do your research and make sure you are prepared.


Preparing for your trip to the dealer

To help you in preparing for your first trip to the dealership, has put together a list of steps that you should complete before you ever step foot on the dealer’s lot:


Step 1: Calculate what you can afford: By understanding how much you can afford before you head out to the dealership, you will have already begun to take control of the negotiation process. Keep in mind that this price range needs to be a static number, one that you are not willing to exceed.


            How to calculate what you can afford:

  • A good rule of thumb is that your car payments should not exceed 5-10% percent of your take home pay. Keep in mind that this includes all of your car payments, even if you already own other vehicles


Step 2: Narrow your search: Dealers always have an agenda, meaning they are trying to rid their inventory of the cars they have the most of in stock. So unless you have a clear idea of the type of vehicle you are looking for, the sales representative will do their best to steer you in the direction of the car that benefits them.


            What to consider when narrowing your search:

  • Number of passengers – Is this a family car, work car, or recreational vehicle
  • Style of vehicle – Are you looking for a sedan, pickup truck, SUV?
  • How important is fuel economy?
  • How much cargo do you need to haul?


Step 3: Visit the manufacturer’s website: If you are interested in a specific make or model, it is important for you to visit the manufacturer’s website before contacting a dealership. Manufacturers often offer rebates, incentives and discounts that have not been publicly announced. So by visiting their website, you can bring these items to the dealer’s attention

Other things to look for:

  • What is the MSRP: Every new vehicle lists a Manufacturer’s Suggested Retail Price (MSRP). This can be a great starting point when negotiating with the dealer
  • Rebate programs: Some manufacturers offer rebates for car buyers who belong to certain organizations
  • Mailing list: If the manufacturer offers a mailing list or news updates make sure you sign up. These resources often contain coupons or special offers.


Step 4: Shop for financing: Do not just automatically accept financing offered by the dealer. Many times, you can get a better deal on financing by shopping around for a loan. You can do this by contacting your local credit union or bank. Additionally, has partnered with Auto Credit Express to provide you with competitive auto financing rates – regardless of your credit. Visit our Car Financing Center  to learn more

How do Reliability Ratings and Depreciation Rates Factor into the Used Car Buying Process?

Buying a used car is often the ideal choice for car buyers with limited budgets. When compared to buying new, not only are most used cars priced significantly lower, but these vehicles hold their value significantly better and will often require you to pay less in insurance and taxes.


Of course, buying a used car does you no good if you end up with something a little less than reliable. To help you avoid this, you may want to consider the following points:


The Reliability of the Vehicle

Admittedly, when you are buying a used car it can be next to impossible to guarantee reliability. Regardless of how thoroughly you inspect the vehicle or how many vehicle history reports you have access to, you can never be completely guaranteed that you are purchasing a car that is headache free.


This, however, does not mean that you are unable to make some pretty good guesses based on the history of the vehicle’s reliably. Both and  offer some quick insights into a specific model’s history of reliability. By using these tools to compare models, you will be able to avoid models that are notorious for letting people down.


The Vehicle Depreciation Rate

Did you know that the average new car loses between 40 to 60 percent of its value within the first three years of purchase? For example, the average depreciation on a $30,500 vehicle leaves somewhere around $17,500 after three years.


Now compare that to later model vehicles, which on average only lose about twenty percent of their value in years four, five and six. For example, if you waited three years to buy the $30,500 car we referenced above, you could probably purchase it for somewhere around $16,000. Then over the next three years, the vehicle would depreciate at around a 20% rate, meaning you would only lose about $3,500 – which is significantly less than the $17,500 loss in the example above.


However, it is important to keep in mind that not all vehicles depreciate at the same rate. In fact according to MSN, the 2004 BMW 3-Series held its value surprisingly well – only losing about 25% of its value after the initial 36 months. So when deciding on which used car to buy, make sure you research the vehicle’s history of depreciation. This will offer some insight on how much value you will lose down the road.


Don’t Get Taken by the Dealer

Worried that your next trip to the car dealership will result in the purchase of a car you cannot afford – or worse – one that you really did not want. The following list offers advice on navigating the car dealership.


Take your time and beware of the limited time offer:

Car sales representatives want you to buy that day. Statistics tell them that if they let you walk off the lot without making a purchase, you probably won’t be back. With this in mind, they try to entice you with “Can’t Be Beat,” “Buy Today” promotions.


  • The Tactic: To get you to buy the same day, the dealer will offer a myriad of confusing and hard to understand promotions. They will tell you that if you walk off their lot, the deal they are offering will expire.


  • How to avoid: It is important to take note that the sales representative is probably not lying. When they tell you a certain vehicle has limited stock or that a promotion is soon to expire, chances are they are telling the truth. However, what the dealer does not tell you is that when the promotion expires, another one will take its place.


Look at more than one car and avoid tunnel vision:

It’s called tunnel vision, and dealers love it. Their goal is to get you focused on one car and one car only. This limits your questions and concerns, meaning you are more willing to buy the same day.


  • The Tactic: When you walk on the lot, the car sales representative will immediately begin with a list of questions. They’ll ask seemingly innocent things such as, “What kind of car do you want,” and “how much can you afford?” Before you know it, you are standing in front of one vehicle, and they are forcing you to take it for a test drive.
  • How to avoid: Don’t rely on the dealer to be your guide. Instead, do a little homework before going to the lot. When the dealer does approach you, you will be in control and can direct them to the cars you are considering.


It is a car buyer’s market. So if you ever feel that the dealer is being too pushy, or you are uncomfortable with their sales approach, simply walk away.