When buying a new car, one of the most important questions to ask yourself is how much can you afford to pay.
Financing or Cash?
Are you financing this purchase, or paying cash? If you are paying cash, it is a little easier to know what you can afford, but the question of what is prudent still remains. If you are financing the car, a good rule of thumb is not to exceed 10% of your take-home pay on a car payment.
Debt to Income Ratio
You want to keep your debt-to-income ratio lower than 43%. This is because this is the maximum debt to income ratio that many lenders will lend up to for mortgages.
New or Used Car?
When buying a car, there are pros and cons to choosing a new or used vehicle. When you are buying a new vehicle, it will depreciate faster but have less maintenance in the near term.
