Tips for buying the right car

The price

You may already be dreaming of a model that has caught your eye. Or of features that will make your driving more pleasurable. But first you must face reality. The first step in buying a car should be to estimate what price range you can afford.

To do this, you need two pieces of information:

Down payment: How much money can you pay up front in cash, with a trade-in, or both?

Monthly payment: If you plan to borrow money, what is the maximum payment you can afford every month?

While it may be possible to find an auto loan that requires a low down payment, it’s best to, put down as much as you can afford—preferably at least 20 per cent.

A higher down payment reduces the amount of money you need to borrow, which lowers your monthly payments and reduces the amount of interest you’ll pay overall.

A down payment doesn’t have to be all cash. If you already have a car, any trade-in allowance the dealer gives you for it can be credited toward your down payment.

Or you can sell it yourself, which will usually get you more money than trading it in. But you may need to do it before you buy your car.

To get an estimated figure for the monthly payment, Consumer Reports’ financial experts recommend that your total debt payment be no more than 36 per cent of your income.

Going by this rule, you can use the following steps to determine how much you can afford:

Calculate what 36 per cent of your monthly income is.

Itemise and total all your monthly payments, including your mortgage or rent, credit card bills, and other instalment loans.

Subtract the total of your monthly payments from the 36 per cent figure.

By knowing your down payment and monthly payment, along with a typical interest rate and the number of years you’re willing to make car payments (the term of the loan), you can calculate the price of the vehicle that you can afford and the loan amount for which you’ll need to qualify.

You can see what the interest rates are by calling your bank, or other lending institution.

In addition to the vehicle price, you need to consider other costs, including registration fees and insurance premiums.

Registration fees can increase your out-of-pocket cost, and driving a car that’s worth more than your current one will cost more to insure. Be sure to check with your insurance agent to understand what you’re getting into.