If you want to know how much money you should spend on a car, this article will answer that and much more.

Yes, you will learn exactly how much you should spend buying a car, why and answers to other relevant related questions.


Lesson from Winston Churchill

Winston Churchill was a leader of the United Kingdom during a very difficult and dark time in history.

The interesting question is did Winston Churchill define history or did history define him?

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In either case, Winston Churchill, through his leadership, was a motivational and inspirational leader through the darkest time that modern England had experienced.

His leadership abilities are renowned and many study his leadership skills and motivational ability as a model for their own life.

Winston Churchill was also gifted with the ability to use words to encourage, motivate, and often, humorously, put into words what many of us feel.

For example, he was known for his drinking and on one occasion a lady of nobility said to him Mr. Churchill you are drunk.

To which he replied, “My dear, you are ugly, and what’s more, you are disgustingly ugly. But tomorrow I shall be sober and you will still be disgustingly ugly.

So let us tie in this story of Winston Churchill along with our buying a new car and how much should we expend?


Importance of Car Spending

Many of us are enthralled with the thoughts of buying a sleek, beautiful, shiny new vehicle.

When we go out for a test drive, we sink deep into the plush seating and are mesmerized by the dashboard and all of the features that the car is equipped with.

Additionally, all of our senses are fully engaged including our sense of smell. There is nothing like the smell of a new car.

However, when considering how much you should spend on a car, consider the quote by Winston Churchill.

When you drive that car off the dealership, the new smell may remain for a while however upon its use that new smell will diminish.

As will the value of that car once it is driven off of the showroom floor.

In other words, do we want to pay top dollar for a new car knowing that as soon as it hits the streets, the value of that vehicle diminishes and, as well, so does the new car smell?


Personal Car Buying Story

Many of the financial strategies, activities, and advice we receive are from influential people in our lives.

Most likely, those influential people included our parents.

For example, in my own personal life, my dad always cautioned me about buying a used car.

He stated emphatically that if you bought a used car you were buying somebody else’s problems.

Consequently, I took this advice to heart and always bought a new car and never even considered the option of buying a used vehicle.

As we delve into how much should I spend on a car and answers to questions that are often asked, we will look at the purchases of new vehicles and the purchasing of used vehicles.


When the Thrill is Gone

The time has arrived.

Your current vehicle seems to be in the shop more than it is on the road and the costs to continually maintain your current vehicle with replacement parts or repairs are becoming quite a drain on your budget.

The thrill is gone. Besides, the reading on the odometer is now measured in terms of space flight mileage.


How Much Should I Spend on a New Car and Exactly Why?

When purchasing a new vehicle, you may be loyal to a certain model and make and may base your decision on your experience.

Other factors to consider when purchasing a new car are the various features that you want the car to be equipped with.

Another factor includes whether the car will be electric, a traditional gas combustion engine, or a hybrid.

Another important factor in considering a new car is the various safety tests that are done on the make and model that you are considering.

However, all of these standard and extra features and the vehicle that you are focusing on can be disrupted if you don’t have the financial resources for the monthly payment or any needed down payment.

Also, an important financial consideration is what the interest rate will be on your loan if you are not able to pay for the vehicle in cash.

As an aside, it would be prudent for the potential new car owners to check their free credit score to make sure that their credit report is as up-to-date and clean as possible to ensure the lowest interest rate possible.

Related: How You Can Lease a Car Even With Bad Credit.

Also, it may also serve the new owners well to nail down a potential loan in the event that a car purchasing deal is made.

This will give the individual bargaining power in knowing what the approved maximum loan amount may be.

Finally, as it relates to affordability, it is important to know what is the standard rule of thumb for car payments for the average American?

Most financial gurus agree that potential new car buyer should limit their car payment to no more than 10% of their take-home pay.

An example therefore would be if your take-home pay is $6,000 a month you should strongly consider paying no more than $600 a month on your car payment.

Also See: How to Lower Housing Costs.


Answers to FAQs on Buying New Cars


When is the best time to buy a new car?

The quick answer to this question is “At the end.”

This pertains to consider buying a new car at the end of a month or quarter or year.

This is an important financial savings timing issue in that at the end of these segments of time, sales personnel are in a significant push to meet the various sales goals registered at these times of the calendar year.

Consequently, the salesperson may be more inclined to cut a better deal to increase their sales and therefore receive any rewards, promotions, or bonuses.

Of course, buying at the end of the year is a good idea because the new models are rolling out and the current inventory needs to be sold to customers to make room for next year’s models.


Is the sticker price the absolute non-negotiable price for a vehicle?

No. It is important to realize that dealerships receive all sorts of incentives and other cash-related bonuses when new vehicles are sold off of the dealership’s lot.

Consequently, with these added incentives, there may be “wiggle room” to negotiate a lower price if the dealer is willing to dip into some of their incentives to close the deal.

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What happens if I made the wrong decision on buying a car or have changed my mind?

Sometimes, a consumer experiences buyer’s remorse after purchasing something significant. After the deal is struck, the customer may regret buying on an impulse or even buying.

However, there is no set law about having the ability to return something within a short period of time because of a customer wishing they hadn’t inked the deal.

However, consult the contract and determine whether such an option has been provided.

Also See: Best Countries to Invest In Real Estate.


Is it best to use dealership financing or private financing?

The best answer is to secure preliminary financing for your new car before going to the dealership.

Once the deal is about to be made and the terms are revealed, then take the best interest rate offered to you whether it was the preliminary private financing option or the dealership offer.

Also See: Best Books on Making Money including Warren Buffett Book Recommendations.


Should I accept the extended warranty?

New vehicles have a pretty robust warranty on their vehicles. Generally, this five-year warranty should be satisfactory, and therefore buying an extended warranty is not really indicated.

Besides, if taking an extended warranty this is added to your monthly car payment.

That car payment of course is charged interest.

So, yes, if the new vehicle that you are buying has a five-year warranty and you are being offered an extended warranty at an additional cost per month, you probably shouldn’t go for it.


Should I take the trade-in value of my current vehicle as offered by the dealership or should I try to sell my vehicle in the open market.

Having information is powerful. Therefore the owner of the trade-in should look up the value of their vehicle.

One such site is Kellybluebook.com.

If more money can be received by privately selling your trade-in then that most likely would be the best road to go.

However, remember that there is paperwork to be filed, transfer of ownership, and working with the state’s DMV to remove your name as the owner.


How Much Should I Spend on a Car


How Much Should I Spend on a Used Car and Exactly Why?

Another option afforded to an individual who needs to upgrade their current car situation is to consider buying a used car.

In days gone by, buying a used car was a questionable plan of action. This is due to the fact that the potential new owner did not know what sort of shape the previously owned car would be in.

In times gone by, the laws governing the resale of vehicles were less stringent and often, the purchasers of used cars would indeed buy the problems of the previous owner.

There may have been undetected transmission problems, neglect with scheduled maintenance items such as oil changes, radiator systems that were not properly maintained, and the potential of the vehicle having been involved in an automobile crash.

However, today, the resale of used cars has become more involved with greater oversight.

Given the record-keeping and sophisticated computer databases, many issues that used cars had are now reported and captured as part of the vehicle’s history.

For example, if there has been a car accident or major car repair, the significant issues are recorded and can be obtained by using CarFax.

Related: How and Where to Get Free Carfax Report.


Answers to FAQs on Buying Used Cars


Are there certain used cars that under no circumstances should I buy?

Yes, those cars that consumers should “steer” away from include vehicles that have titles owned by salvage companies, vehicles that reflect over 200,000 miles on the odometer, or purchasing a car that has no maintenance records.


Should I buy a used car from a dealership or from a private owner?

There are various pros and cons related to whether an individual should buy a used car from a private owner or dealership.

Dealerships have a reputation to consider and if the customer is not satisfied, the dealership may be impacted negatively.

Therefore, the dealership wants the customer to be satisfied by providing a quality use car.

On the other hand, buying a used vehicle from the private owner may offer to the potential customer the best price as there is limited overhead involved with the purchase.

Also, buying from a private owner may provide the potential buyer a better understanding of the vehicle and the appropriate maintenance receipts and schedule provided by the current owner.

The possible downside of buying from a stranger or friend is the difficulty of acquiring financing for the vehicle.

In either case, it is probably prudent for the potential buyer to have the used vehicle checked out by a trusted mechanic.


What rights do I have as a used car buyer if I’m not satisfied with the purchase?

The protection of used car buyers varies from state to state. Some states have enacted “lemon laws.”

While some states have enacted legislation that protects the consumer based on the warranty of the used car that they purchase.

Sometimes the dealership will offer warranties or sometimes the purchase of the used car is labeled as “as is.”

Again, these laws vary from state to state.

Therefore, the answer to this question is yes there are protections in place for use car buyers, but vary from state to state.

And it is important to know, prior to purchase, what is allowable by your state and enter into the appropriate agreement with the dealer.


Other than kicking the tires, what systems in the car should I have checked out?

A used car inspection, prior to purchase, should include lifting up the hood of the car and checking the hoses and belts, the color of the engine oil, any fluid leaks, the color of the coolant, any corrosion on the battery cables, and inspecting for uneven wear on the tires.

Any deviations from normalcy could be an indicator of a poorly maintained vehicle or trouble waiting to happen.

Also, inspect for any damage to the body of the vehicle and to make sure that all of the electrical systems and appropriate lighting is in working order.

Check out the following answers to other financial questions you might have:



As this article has shown, how much you should spend on a car is dependent on affordability.

This holds true whether the vehicle is considered new or used.

Also, along with the affordability issue of monthly payments are the associated maintenance costs, insurance costs, and miles per gallon when driving the vehicle off of the showroom floor and onto public streets.

The watchword is knowledge. A knowledgeable consumer, whatever the product being considered, gives an edge to the customer in their dealings.

Again, this company has paid $25+ million to members:

SurveyJunkie (only USA, Canada, Australia residents allowed). You can earn money sharing your thoughts. They have already paid $25+ million to their 20+ million members just for sharing their thoughts and opinions. Click here to join SurveyJunkie for FREE

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Apart from being a seasoned Personal Finance expert who has written for top publications around the world, I bring significant personal financial experience. Long story short... through bad financial choices... I found myself $100,000 plus in debt. I was able to dissolve this indebtedness and regain financial solvency. This financial turn around was accomplished through reading, studying and implementing a financial plan. My financial plan included paying down my debt through budgeting, being cognizant of where my financial resources were being spent, changing my attitude about money and understanding the binding chains of the improper use of credit. Today, and for 10 years, I have been debt free and have invested wisely to enjoy my current retirement. This is allowing me to write to help others make, save and grow money wisely!