It's time for a consumer quiz. Which of the following answers doesn't match the set?
a. Buying a lemon
b. Getting into a car crash
c. Making a car payment
Bzzt! Pencils down. The correct answer is: making a car payment. While buying a lemon and getting into a crash may be beyond your control, you have the power to determine much about your car payment – how much you can afford and how much you’ll pay.
Some experts say the simple rule of thumb is your total monthly car payments – for all of the household’s cars, new or used -- shouldn’t exceed 20 percent of your monthly income after taxes.
However, that dry calculation can be deceptive, because it doesn’t take into account how much you pay for other needs, such as rent or mortgage, food, gasoline and utilities.
“Everything is related to your particular budget,” says Patricia Jimenez-Ronka, financial specialist at Consumer Credit Counseling Service of Greater Atlanta Inc. The nonprofit service also has offices in West Palm Beach, Fla.; Knoxville, Tenn.; and Jackson, Miss. “You need to find out how much you can buy, not only how much you can pay a month. The key for everybody is not to pay up to the max.
“For some people, a car is everything they’ll own, and they can afford higher payments. Usually, though, you should look at how much you can pay in relation to your other expenses, especially under unforeseen circumstances. For example, could you be sick three weeks, miss work and still make the payments?”