How to calculate your car buying budget

There are a lot of things that you are going to have to think about when you are buying a new car, one of the biggest will be how much you can afford to spend. This can be tricky to figure out since there are quite a few things that you need to factor in. However once you know what these things are it is pretty easy to work out your car buying budget.

The first thing that you are going to have to do in order to figure out your car buying budget is to figure out how much you can afford to spend each month. Once you know that you are going to want to multiply the amount by 36, 48 and 60 as these are the standard terms, in months for financing a car. This will give you an idea of how much you can afford to finance over the course of three, four and five years respectively.

Of course there is more to figuring out how much you can afford than just calculating the monthly payments. The next thing that you have to do is to figure out the down payment. This is the amount that you can afford to make as down payment, add this to the total that you got above. If you have a car to trade in you will need to figure out how much you will get for that. The easiest way to do this is with the Kelly Blue Book. Make sure that you look at the trade in column as this is likely what the dealer will offer you. You can add this amount to the above total as well.

The next thing that you are going to want to do is to figure out what the tax and financing charges will be. The tax will be the easiest since you know what the sales tax in your state is. In order to figure out the financing costs you will need to estimate what the interest rates will be, generally they are between seven and ten percent. Once you know this you will want to add the sales tax and the interest rate and multiple that amount by the totals that you go above. For example if the sales tax is seven percent and the interest rate eight percent you would multiply each total by .15, to get the amount you will pay in taxes and interest. Take this number and subtract it from the total that you have above.

At this point you should have the price that you can afford to pay for a car based on financing it for 36, 48 or 60 months. This will tell you how much you can afford to spend; however since you can usually negotiate a lower price you are probably going to want to look at cars that are little bit more expensive than the totals that you got.