Get Involved!

Toronto > Shopping > Transportation > Car Shopping > Research >

Automobiles: How much can you afford?

Regardless of whether you decide to buy or lease your next car, it's important to establish a realistic monthly amount that will fit into your budget. How much should this be?

A good rule of thumb is your total monthly car payments - whether you own one car or more than one - shouldn't exceed 20 percent of your monthly take-home pay. So if your gross salary is $4,000, and after-tax is say 3,000, you shouldn't spend more than $600 a month. Once you decide on a car, contact your bank first, to get their offer on payment terms and interest rate. Not only do you get a deal everyone else must beat, but they may make you aware that you are paying too much (or too little) for a given car, or share other concerns about the total cost of ownership of this particular vehicle.

WARNING: Dealers will often focus on the monthly payments, and offer you a "lower monthly" in return for stretching out payments to 5 or 6 years, which may cause problems if you trade in your car every 3-4 years. Because many new cars depreciate 30% as soon as you take them off the lot, it is easy to get "caught short" on car loans or leases, where the amount owed exceeds the market value of the vehicle. Negotiate price first, and only then, financing.