Q: How do I know what how much I can afford to pay for a car?

A: It’s a good idea to have all your questions about paying for your car resolved before you start to shop. The most difficult part about buying your car will probably be figuring out what you can afford. So how do you determine what you can afford?

A good rule of thumb: your monthly auto loan payment should not be more than 20% of the money you have available each month after you pay for your usual living expenses — rent or mortgage, utilities, food and transportation, credit card payments, etc.

When reviewing your budget, you should also take into consideration other associated costs including fuel, license, registration, personal property taxes and insurance. Call your insurance company before you purchase your car to determine what the monthly insurance cost will be.

If you’re taking out a car loan, figure on a down payment of at least 10 percent. Lenders might be skeptical otherwise. If you have enough cash available to boost that percentage, do so. Cutting the principal of your loan will do more to slash payments than getting a lower interest rate.

If you have ailing credit, which can result from a pattern of late payments, you may find yourself in the “subprime” financing arena. If you have credit problems, you should first try to work with a consumer credit counselor or other advisor. It may be possible to consolidate debts or come up with a workable repayment plan. If you show a loan officer that you are taking action to overcome the problems, they may be more willing to grant a loan at a reasonable rate.

In addition, be sure to check out alternate sources for loans such as the credit union at your workplace, your bank, or other organization with which you are affiliated. As a last resort, dealers may offer special financing packages for those with credit problems. However, you might pay as much as four percentage points more for a loan.

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