Living in Los Angeles, I know personally how important it is to have a car in today’s society. In L.A., there is public transportation, and the powers that be are trying to improve it.  But for some reason, the local trains and buses never seem to go anywhere near where I need to be.  And if they do, it takes an inordinate amount of time to get there. (I would spend 24 hours a day either working or getting to and from work — I’d have to eat, sleep – and somehow shower – while commuting.) In addition, I have other obligations (social obligations; people to see; or just wanting to go out) that don’t always fit nicely into a bus or train schedule. Plus, as a woman it is not always safe to ride public transportation depending on how late it is and what part of town I am traveling through. So, no matter how frugal we would like to live, an automobile in today’s world is essential.

Before taking a trip to the local auto dealership, though, it’s usually a very good idea to calculate ahead of time ‘how much car’ one can afford.  Since almost no one (not anyone I know, at least) pays cash for a car, people should turn to an online payment calculator to figure out how much an affordable monthly payment translates to a purchase price.

Online payment calculators are usually very easy to use. They are on many automobile-related sites like Edmunds or AutoByTel. You enter various data, such as the car’s sale price, the interest rate and number of months you want to pay back the loan, the amount you have to give as a down payment, any trade-in value, etc, and the calculator tells you how much your monthly payment will be for the length of the loan.  Some even work backwards; that is, if you enter in the amount you can afford to pay each month, they will tell you what the maximum price is that you can afford.  A few calculators will even include factors such as expected insurance costs, but obviously this will vary depending on where you live, your age, how good your driving record is, how long you’ve been driving, etc.

When preparing to make an automobile purchase, be sure to factor in all of the costs of ownership. Auto insurance is a big one, and never seems to be getting any cheaper.  Don’t forget about other costs such as gasoline, and car maintenance is essential to keep your car running optimally for as long as possible – change your oil religiously, and invest in regular tune-ups, brake inspections, oil changes, and so on.  The annual registration fee can be a noticeable amount (It certainly is here in California).  Every couple of years you will have to get the emissions on your car tested – a small fee in itself – but if your car fails, the cost to fix the problem could be significant.  Depending on where you live, you may find yourself also paying a little extra for garage space.

If you do have an accident, there will be the out-of-pocket expense to cover the amount of the deductible.  Most people sign up for deductibles of $250 or $500, but it’s possible to get deductibles of $1000 or even more. (The higher you set your deductible, the less your auto insurance premium will be, but you run the risk of having to pay hundreds of dollars more in the unfortunate case of an accident.) Another bad side effect of having an accident is that your premium will usually go up unless it was proven that the other driver was 100% at fault and your insurance company does not have to pay for any repairs or medical expenses.

As I mentioned earlier, your own personal ‘affordable’ monthlhy payment is a critical piece of information to have when car shopping.  Car dealers often try to push you into a car that ends up costing more that your budget can reasonably handle.  When you use an online calculator to find your maximum price, stick to it!  Don’t let the salesperson make a car seem more affordable than it really is by extending the loan… do you still want to be making car payments 6 or 7 years from now?  What shape will the car be in by the time you are finished paying?