How much car can you afford?
Take a look at your budget and figure out how much money you’ve got left after the basic needs, from rent or mortgage and utilities to your 401(k). Come up with a monthly number and run it through an online calculator to see how much car that will get you. For example, $400 a month for 48 months will buy you a $25,000 car, assuming a $3,000 trade in, a $4,000 down payment, and a low interest rate. Never extend a car loan beyond 60 months: You run the risk of owing more than the car is worth.
Buy or lease?
Buying is always a better deal, as you can get years of service from a vehicle after it’s paid off. If you lease, you will always be making car payments. When you buy a car, you know exactly what the price is. Lease terms, however, are confusing and it can be hard to tell exactly what you’re paying for in interest and fees versus the car itself. Guess who benefits when the consumer is confused? Unless you have tax reasons for leasing—maybe you’re a business owner who can deduct the payments—you’re better off buying. But, you say, for the same monthly payment you can get a nicer car if you lease. That is true. But if you can’t afford to buy that car, you can’t afford that car.