How Much Car Can You Afford?

By: Levi Quinn
Submitted: 2008-09-02 17:42:32
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EMI loans have made people’s lives so simple yet so complicated! With easy monthly installments, almost everything is within your reach but at the same time it is crucial to ensure that you don’t over-shoot your budget. You have to be sensible and practical while taking these decisions. There are a lot of online portals now, which can give you advice about these things.

Say you are going to purchase a car, for example. The usual expert advice is that your car payments, including repairs, insurance etc., should not amount to more than 20% of your income. Of course if you are purchasing the car through one-time cash payment you don’t have to worry too much. Nevertheless, it is advisable to write down every expenditure and maintain a log of sorts.

If you are new at this, one thing you need to understand is the only sign of good budgeting is that you don’t end up exceeding the limit. Making a tight budget is quite futile if you are going to exceed it ultimately. Refrain from going overboard and splurging. When you go out shopping try to stick to things on your shopping list.

Keep room for interest rates. You might end up paying more than you projected, depending on your credit history and time of the year etc. On the other hand if interest rates are low you might be able to purchase a much better model than you initially planned. Say you go out to buy a Corvette and end up with a Jaguar!

Another thing to be taken into consideration is the down payment. Till not very long ago, car dealers required you to put down a minimum down payment before handing over the keys. But things have changed now. Even so, the more money you can deposit in the beginning, the better it would be for you and your budget.

Also, in some special cases, the 20% rule does not apply. If you are still living with your parents for example and are studying then you would have no choice but to go beyond the 20% mark if you have to pay for a car. But you will also end up saving a substantial amount on house rent and other expenditure. So things will balance out.

For parents, it's important to teach kids about saving money and maintaining a budget. You have to make them understand that they would gradually have to handle their own expenses. They have to be disciplined and committed to chart a budget and then stick to it. Tell them about the 20% rule. That’s a good start for anybody!

Article source: Expert Articles