How Much Car Can You Afford?

These rules of thumb may help you finance your next car.

Other than buying a house, acquiring a vehicle is likely the most significant purchase you’ll make. Mitchell Weiss, author of Life Happens: A Practical Guide to Personal Finance from College to Career, offers these tips to demystify the process:

• Look beyond the sticker. The purchase cost of a vehicle involves much more than that five-figure sales price on the window. Factor in sales tax, registration, depreciation, inspection fees and insurance. Online resources from Kelley Blue Book and Consumer Reports can help you weigh many of these factors, including service records. “With this kind of information, you can decide if it’s going to cost you more to own a particular make and model than you planned,” says Weiss, who is also an adjunct professor of finance at the University of Hartford.
   
• Consider day-to-day expenses. That includes fuel and scheduled maintenance. “All of this needs to be estimated and added to the budget,” Weiss says. “Buyers can project maintenance costs by asking the dealership for its cost schedule, and then compare that to what an independent garage may charge for the same work. Warranty work should always be done at the dealership, though.”
   
• Beware “special” financing from the dealer. “Instead of taking this, call a bank and get the auto-loan rate,” he says. “That’s a ‘real’ number. Then go online and find out what you should actually expect to pay for the vehicle. After that, head to the showroom and negotiate with as much cash as you can to get every dealer and factory incentive out of your sales rep.”