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 vehicle 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. Tim is 24 years old, and his current gross monthly income is $3,800, Given an average personal tax rate of 32% for his federal, state, and local taxes, Tim'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.) $517 0 $1,292 $1,550 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 ot a possibile loan to determine the value of the potential toan. When this value is added to a saved amount of a down payment, yon know the total amount that you can reasonably afford to spend on a new car To review this process, consider the following case: Tim's Car-Buying Decisions Tim, who lives in St Louis, trying to decide between the following car models Cost $12,295 Brand and Model Kia Rio Jeep Patriot Chevrolet Camaro Ford F-150 Pickup 16,780 26,305 27,690 He's currently accumulated a down payment of $3,000 and he has determined that he can afford maximum payments of $375 per month. His initial research on the current cost of auto loans has found that his lowest cost loan would be made by a credit union and would require an Interest rate of 6% for five years and the most expensive car that he can Given this information, the maximum amount that Tim can afford to pay for his new car is afford to purchase, without stretching his budget, ist The Ford F-150 Pickup The Kia Rio The Jeep Patriot The Chevrolet Camaro 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 Purchase the more expensive car now and then ask his boss for a raise next week Go ahead and purchase the more expensive carne deserves to be happy
