Auto Loan Tips

How Much Car Loan Can You Afford?

Good advice that you should only spend no more than 10 percent of your income on car expenses. I bought three cars in the past, and every single time I paid by cash.

Kicking a few tires is only half the battle. Before you begin looking for a new car, you should know your limits and what you should be spending. Experts say you shouldn't spend more than 10 percent of your gross income on car expenses, which includes the cost of the car along with insurance, gas and maintenance.

Once you decide on a price range, you'll want to decide how much you can put down as a down payment and then negotiate the price of your car. Too many buyers accept long financing arrangements in order to minimize their down payment. If they decide to trade the car in the first year or so, they often find that they actually owe more on their car than it's worth. A good rule of thumb is never to finance more than 80 percent of the true cost---the dealer's invoice---of the car. At least 20 percent or more should be paid in cash or the equity of your trade.