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. Andrew is 24 years old, and his current gross monthly income is $4,200. Given an average personal tax rate of 30% for his federal, state, and local taxes, Andrew's net monthly income is . If he follows the advice of finandal experts, what is the maximum amount that he should spend to burchase a new vehicle? (Note: Round your answers to the nearest whole dollar.) $2,352 (\$1.470) $568 An aitomative 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: Andrew's Car-Buying Dedisions Andrew, who lives in St. Lou's, is trying to decide between the following car models: 6. for four vean. He's currentiy accumulated a down payment of $5,000 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% tor four years. Clven thas information, the maximum amount that Andrew can afford to pay for his new car is , and the most expenslve car that he can aiford to purchase, without stretching his budget, is: The Mini Cooper The Volvo C70 The 3een Wrangler The Hyundal Accent