3. How much car can I afford? How much car can I afford? Before buying a car, it is critical that you determine both the complete price of the vehicle and what you can afford to spend. This information is essential in deciding whether to pay cash or finance the vehide with a loan. The difference between these two methods of payment, however, is the difference between paying the car's full price versus making a much smaller down payment and fitting the monthly payments into your budget. There are two schools of thought about how much car you can afford. Financial experts recommend that the amount of your car payment should not exceed 20% of your net monthly Income. Others suggest that if you can accommodate the payment in your budget, then it's acceptable-although you shouldn't obligate yourself to eating rice cakes for the next four years. Dmitri is 55 years old, and his current gross monthly income is $3,200. Given an average personal tax rate of 329 for his federal, state, and local taxes, Dmitri's net monthly income is If he follows the advice of financial experts, what is the maximum amount that he should spend to purchase a new vehide? (Note: Round your answers to the nearest whole dollar.) $2,176 $435 03640 An alternative to the 20% rule is to evaluate your budget, determine a monthly payment that you can reasonably afford, and then incorporate that information with the maturity and interest rate of a possible loan to determine the value of the potential loan. When this value is added to a saved amount of a down payment, you know the total amount that you can reasonably afford to spend on a new car. To review this process, consider the following case: Dmitri's Car-Buying Decisions Dmitri, who lives in San Francisco, is trying to decide between the following car models: Cost $14,195 Brand and Model Hyundai Accent Mini Cooper Jeep Wrangler Volvo C70 23,450 26,790 39,950 He's currently accumulated a down payment of $2,000 and he has determined that he can afford maximum payments of $475 per month His initial research on the current cost of auto loans has found that his lowest cost loan would be made by a savings and loan association and would require an Interest rate of 6% for five years Given this information, the maximum amount that Dmitri can afford to pay for his new car is afford to purchase, without stretching his budget, is: and the mostlyxpensive car that he car $26,570 The Volvo C70 The Hyundai Accent $19,928 $30,555 The Jeep Wrangler The Mini Cooper However, he could upgrade to a more expensive model by undertaking several activities. Which of the following activities would allow this upgrade? Check all that apply. Go ahead and purchase the more expensive car; he deserves to be happy I Purchase an upgraded vehicle with fewer and less expensive options Postpone his purchase until he can save more money for a larger down payment Purchase the more expensive car now and figure but later how to pay for it