Hi Parents of CC,
I’m a huge car enthusiast, and I have a question for those of you who have financed reasonably expensive cars. How much income (after-tax) do you think somebody should make, in order to pay around 700/ month to finance a car? Do you guys tend to go by the 20% of income that I’ve read on some financial advice websites? So that would mean in order to spend 700 a month on a car one should make around 3500 a month. That would mean $42,000 in net income and around 55k pre-tax?
When I bought my current car, my parents loaned me around 2/3 of the money (at no interest) so I’m paying about 415 a month (20 month term which will be up in July). Effectively, about 1/4th of my monthly income goes to the car payments. I know it’s a bit high. But paying more now (with no interest) beats adding another 1,000+ to the car cost because of interest.
I just wanted to say for the record I’m not buying another car or something, but I definitely would like to when I get out of undergrad since my current one would be paid off and would probably have over 100,000 miles by then.
I have a lot of answers to questions you didn’t answer. Take your time buying a new car out of school. Paying cash for one would be best, while also having an emergency fund set up. Keep the car you have in good repair and wait. That new car will drive better when you don’t have a big payment hanging over your head. Plus, you are evaluating payment, rather than total cost, which would include consideration of the interest rate and time.
Jobs can disappear on you in a heart beat. Years back I joined a team that was growing at a major company. They laid us all off about 30 days after I was hired. One of the other new hires was totally PO because she had bought a luxury car that would have been easily affordable on her new salary.
Dave Ramsey has some of the best, simple financial advise I have heard. If you insist on a % of income, make it on net take home pay, not gross income. After taxes, savings, 15% of income for your 401K contribution, insurance, etc.
I’m going to keep it. I was thinking I might keep it until the engine eventually dies (which shouldn’t be until 200,000+ miles because it’s an Infiniti) and then turn it into a track car.
BTW the random $700 I was using as an example was including interest.
I definitely wouldn’t get a job and then go buy a car on the way home from my first day haha.
Once you are employed, many auto lenders will be perfectly happy to loan you more than you should accept. Remember that if you take out too much auto debt, you will greatly limit your housing purchase or rental choices for a number of years.
If you want to be financially conservative about it, choose a car that you can comfortably pay the full price up front for (although you may choose to finance or lease a car within that price limit for various reasons, such as if a manufacturer incentive is offered to finance or lease buyers but not cash buyers).
Be sure to consider costs like insurance, fuel, maintenance, etc. in evaluating how much a car can cost.
I make a lot, lot more than that and keep my car payments under $400/month. For starting out, I would not buy the most expensive car they will let me for the longest term. You may want options sometime in the next 7 years to upgrade your housing, furniture or get married and that $700 could be quite an obstacle. Do you need it or want it? If you’re just starting out in a career focus on needs. A good idea might be to start paying that $700 payment to yourself into a savings account until you need to buy a car - then not only will you have a good deposit but you’ll know how that budget number feels.
P.s. My son is a huge car guy too - I understand the struggle!
Right, and I know enough about cars to know which ones would have more unexpected maintenance costs. I was just imagining that perhaps I’d want to add a car that’s slightly bigger than my coupe. In any case, as people have said that will end up depending on many factors such as: am I with my current girlfriend still, am I staying in the NE USA, does it seem like I’m going to aim for graduate school, etc.
@doschicos I respectfully disagree. A car is not “just transportation”. Every single time I drive my car, it puts a huge smile on my face. I’ve had it for a year now and the feeling has barely faded. It makes the commute to and from work so much more bearable. If I had to do the commute in a dreary car I’d dread going outside every morning. My girlfriend and I are the same way in that sense. She has an 07 mini, I have an 05 G35.
I’m still in the midst of transfer decisions, but if I move to the east coast, I’m going to end up faced with the decision of: Do I sell my car in CA, do I sell my car on the east coast as a valuable CA car, do I just keep it and use my gfs car during the winter, or do I put snow tires on it and use it in the winter.
It’s just that my parents make questionable financial decisions, so I prefer to come on here and ask a slightly larger group of people, rather than rely on my parents for advice. Especially since they know almost nothing about cars.
When you buy your fictitious $700 a month payment car…will you have any other bills…like rent, utilities, insurance, food, clothing, phone, etc?
Or will you be loving rent free in your parent basement so you can buy a $700 a month car?
When the time comes…you need to look at all,of,your living expenses…and your income…and then determine how much you can actually afford to spend per month on a car.
And look at the potential tax situation and car insurance for each vehicle under consideration. More expensive car will lead to bigger expenditures there as well.
The bank where you are applying for the car loan will probably look at your credit rating, income, how long you have had your job, total debt/income ratio. That would include student loans, CC debt if any.
If you drive your car in a city like Philadelphia, it might get beat up a lot.
When I was buying my first car a year ago my mom pushed me to spend more on a car that was 1. From a dealership instead of a private seller and 2. Had lower mileage so higher resale value. Haven’t really seen the benefit of either of those yet.
I don’t resell cars. They have to be pried from my hands. I’m on car #4 in 30 years. I had planned on keeping #3, with more than 230,000 miles, to see if it would roll to 300,000 miles and then 400,000. But unfortunately, I killed it in an accident.
@mommdc I’ve got a credit rating of over 800, and it has hovered above at least 780 for the last few years but it really seems like it’s better to buy than to finance.
A general question, if a person finances a car, does that mean you can only buy from a dealership? So for example, if I wanted to buy a car off a person on craigslist my only option would be to pay cash?
@TQfromtheU I see Infinitis go over 200,000 miles but rarely above 300,000
I don’t want to give an opinion on purchasing a car. I know a lot of people who take pride in what they drive and others who look at it just as a way to get from point A to point B. The right amount to spend is what you can afford. Unfortunately, no one can make that prediction for you right now. Even if you knew your salary when you graduated there are too many unknowns right now - cost of living and other expenses. I hope you end up in your dream car and when the time comes to make the purchase you will know what kind of monthly payment you can handle. There is no rule or magic percentage. Some people will need 100% of their salary just to make ends meet. Someone may want to spend all their disposable income on a car and others may want to spend all their disposable income on vacations. Right now you just don’t know what your disposable income is.
I’m on car