Annual income to price of car

[Daft99]

Say you have a job/business etc.

What do you figure you should be bringing in annually to afford a $50,000 vehicle? Say a TL or so.

How about if you are in a slightly different league, and looking at exotics?

What do you figure you should be bringing in annualy to afford a $300,000+ vehicle?


Do you think the margin should change between those different types of vehicles? If so, what do you think the margin should change to?
ex:
If you want to purchase a $50,000 vehicle, you should make at least 1.3-1.5 times that amount. (Pulling these figures from thin air)

If you want to purchase a $300,000 vehicle, you should make at least ___ times that amount.

[adam c]

to be approved the maximum u can put towards loans of any nature is 42% or less of your gross income

what that means is if u have other loans or debt that is also factored into how the type of car u can afford

[rc2002]

This is going to vary widely for everyone. People who own their own company and can write off the vehicle as a business expense can afford to spend a lot more. Some people are always going to be tighter with the purse strings too - The owner of Ikea is the richest man in the world and drives a 20 year old Volvo.

On a side note - Are TL's really going for $50k now? I know that they were going for $40k out the door (everything in) a couple years back.

[The Cosworth]

The rule of thumb I use is 70% of your yearly before tax salary is the most I would EVER pay on a car.

Hence 50,000 a year is a 35,000 car.

I went well below that and still have lots of cash to blow.

Currently I am at 40% and it sometimes seems like a waste of money

[blownz]

I have always thought it isn't wise to spend more than 50% of your yearly income towards a vehicle. So for your 50 grand vehicle I wouldn't recommend buying that unless you made at least 100k a year. But that is just me. Everyone is a bit different. How many years you plan on keeping the car would make a difference too imo. That said I have never spent more than 35% of my income on a vehicle.

A 300k vehicle is a bit differnt though. I would never consider buying an exotic worth that much unless I had the cash in the bank and didn't need it for anything else. So yearly salary doesn't matter as much. Again depends on the person. My boss makes 7 figures and thinks spending 300k on one car that you can't drive year round is stupid but he buys about 3 100k cars every year and loses a ton on depreciation each year but doesn't care when others would find that stupid. :dunno:

[Mazstyle]

It basically comes to down to people opinions, nowadays people are buying way more car then they really should be thanks to leases/longer finance terms etc. I think you should look at whats a comfortable monthly payment for you and try not to stretch it out past 4 maybe 5 years max.

IE: say you want a 30k car and get a good interest rate ~1.9, financed over 5 years your payment would be $524

There's a bunch of loan calculators out there - http://www.bmo.com/popup/loans/Calculator.html

[finboy]

even 40% sounds high to me, guess i'm cheap :dunno:

[turbotrip]

Originally posted by blownz

A 300k vehicle is a bit differnt though. I would never consider buying an exotic worth that much unless I had the cash in the bank and didn't need it for anything else. So yearly salary doesn't matter as much.

indeed, i dont think the 300k car has to do with yearly salary as much as what u can spend without feeling it too much

[Jlude]

Originally posted by finboy
even 40% sounds high to me, guess i'm cheap :dunno:

when I bought my car it was only 20% of my annual income... I'm cheap too... trying to change that though

[bituerbo]

I guess it all depends. Yeah I have heard that 40%-50% is a typical number. I'm closer to 20-25% but I's CHEAP.

[Team_Mclaren]

keep in mind you dont have to pay for your car in one year.

[adam c]

im telling u.. i used to work for the bank..

banks and finance companies wont approve you for more then 42%

[CRX-R]

Originally posted by adam c
im telling u.. i used to work for the bank..

banks and finance companies wont approve you for more then 42%

What you're talking about is payments, your finance payments can't be more than 42% of your income, mortgage, interest, loans, etc.... But even this isn't a hard rule.

[z1_bam]

I spent 110% of my income on a truck last winter (financed) but I dont feel too bad about it as I end up being in my vehicle enough (~70,000km/year) to want something comfortable and reliable

[ricefarmer]

Originally posted by adam c
im telling u.. i used to work for the bank..

banks and finance companies wont approve you for more then 42%

by that logic if I make $100k/year I will only get approved to buy a $42k car.

Only the bank will care about your debt service... most factory or dealer financing/garbage lenders can aprove based on credit score alone.

these guys arene't talking about a TDSR anyways just the ratio between annual salary and price of the car

[max_boost]

There is no magical ratio that can link how expensive car you drive to your income.

What's the point anyway? Really? To determine how much some guy makes? To tell someone, wait, you can't drive that car because you don't make 3X the value of it? :dunno:

[Daft99]

Originally posted by max_boost
There is no magical ratio that can link how expensive car you drive to your income.

What's the point anyway? Really? To determine how much some guy makes? To tell someone, wait, you can't drive that car because you don't make 3X the value of it? :dunno:

It's more just to see what people on the board are comfortable with.

Nowhere did I indicate that I am looking for a hard and fast rule, nor did I say I was trying to find anything out.

[gpomp]

Originally posted by max_boost
There is no magical ratio that can link how expensive car you drive to your income.

What's the point anyway? Really? To determine how much some guy makes? To tell someone, wait, you can't drive that car because you don't make 3X the value of it? :dunno: the ratio is 1.7445. it's set by the canadian government every year. this number is accurate as of jan 1, 2008.

[max_boost]

Originally posted by Daft99


It's more just to see what people on the board are comfortable with.

Nowhere did I indicate that I am looking for a hard and fast rule, nor did I say I was trying to find anything out.

Everyone is going to give you a different answer. The situation will vary between each person as everyone has different expense obligations.

[Daft99]

Originally posted by max_boost


Everyone is going to give you a different answer. The situation will vary between each person as everyone has different expense obligations.

And that's what I'm hoping for :)

Thanks for the input Max_boost.

[SCHIDER23]

so let me get this if I make 45k a year, in theory I wouldn't be able to purchase a 50k vehicle even if I was to put down a 10k downpayment and extend the loan for 5 years at 3.9% with no debt?

[Daft99]

Originally posted by SCHIDER23
so let me get this if I make 45k a year, in theory I wouldn't be able to purchase a 50k vehicle even if I was to put down a 10k downpayment and extend the loan for 5 years at 3.9% with no debt?

I wouldn't take the second post to heart. Based on that, the only people you see driving TL's are people making $120,000 a year with no mortgage.

:clap:

[RY213]

A lot of people with nicer cars lease them and turn them in every 3-4 years...

[A790]

Personally, I hate the idea of financing a vehicle and car payments. My last 4 cars have been bought and paid for in cash, and I love that. Then again, I also have been buying older sport compacts.

My income, according to this thread, would allow me to be driving a $65,000 to $80,000 vehicle, but that'd also mean that I have wicked car payments. I'd rather save that money every month and put it into investments or something.

[Sharpie]

Originally posted by A790
Personally, I hate the idea of financing a vehicle and car payments. My last 4 cars have been bought and paid for in cash, and I love that. Then again, I also have been buying older sport compacts.

My income, according to this thread, would allow me to be driving a $65,000 to $80,000 vehicle, but that'd also mean that I have wicked car payments. I'd rather save that money every month and put it into investments or something.
:werd: I dont think it is worth it to have $600+ payment a month. I am happy with my $150 haha

[me&you]

Originally posted by A790
Personally, I hate the idea of financing a vehicle and car payments. My last 4 cars have been bought and paid for in cash, and I love that. Then again, I also have been buying older sport compacts.

My income, according to this thread, would allow me to be driving a $65,000 to $80,000 vehicle, but that'd also mean that I have wicked car payments. I'd rather save that money every month and put it into investments or something.

You're logic is narrow-minded and terribly flawed. A VERY high percentage of luxury and exotic cars are financed/leased. Paying "cash" for a depreciating assets is out and out dumb if there are other options for that "cash" that can, instead, provide a better return on the money.

Instead of the few hundred dollars a month you're saving out of your cash flow on payments, and putting those towards investments, why not invest the value of your car? You're not only missing out on the returns from that larger investment, but you're not considering the cost of depreciation.

Many of the exotic owners I know adhere to this mantra - Only buy "toys" if you can afford to stroke a cheque for it. But just because you can, doesn't mean you should.

[A790]

Originally posted by me&you


You're logic is narrow-minded and terribly flawed. A VERY high percentage of luxury and exotic cars are financed/leased. Paying "cash" for a depreciating assets is out and out dumb if there are other options for that "cash" that can, instead, provide a better return on the money.

Instead of the few hundred dollars a month you're saving out of your cash flow on payments, and putting those towards investments, why not invest the value of your car? You're not only missing out on the returns from that larger investment, but you're not considering the cost of depreciation.

Many of the exotic owners I know adhere to this mantra - Only buy "toys" if you can afford to stroke a cheque for it. But just because you can, doesn't mean you should.
Piss off with your "terribly flawed" perception of what my logic is. Why would I finance a $7,000 car? Hell, to get reasonable car payments and insurance payments (don't forget, I'm only 21) I'd have to put a stupid amount of cash down on the vehicle anyway, and I'd STILL have $400+/month insurance payments (PLPD + collision).

Think of it like this: the $500+ a month you spend on your car payment, I'm putting into long-term businesses or various investments. As far as I'm concerned, the $7,000 bought me a car for at least 3 years. I don't care about depreciation because it's an expense that I've budgeted and alloted for.

Go ahead and make your car payments. I'd rather take the money that WOULD have gone into a car payment and put it into a mortgage, business, investment, etc. I don't need a fancy car at this point, so I'm not going to pay for it.

[The Cosworth]

Originally posted by A790

Piss off with your "terribly flawed" perception of what my logic is. Why would I finance a $7,000 car? Hell, to get reasonable car payments and insurance payments (don't forget, I'm only 21) I'd have to put a stupid amount of cash down on the vehicle anyway, and I'd STILL have $400+/month insurance payments (PLPD + collision).

Think of it like this: the $500+ a month you spend on your car payment, I'm putting into long-term businesses or various investments. As far as I'm concerned, the $7,000 bought me a car for at least 3 years. I don't care about depreciation because it's an expense that I've budgeted and alloted for.

Go ahead and make your car payments. I'd rather take the money that WOULD have gone into a car payment and put it into a mortgage, business, investment, etc. I don't need a fancy car at this point, so I'm not going to pay for it.

I am not sure but I think you missed his point


take the $7000 and invest it in a 4% or 5% investment, take out a car loan for the $7000 car and pay 1.9% interest. Instead of paying off your car at first.

Overall you are MAKING between 2.1% to 3.1% on your money.

[A790]

Originally posted by brendankharris

I am not sure but I think you missed his point

take the $7000 and invest it in a 4% or 5% investment, take out a car loan for the $7000 car and pay 1.9% interest. Instead of paying off your car at first.

Overall you are MAKING between 2.1% to 3.1% on your money.
Yes, but you aren't factoring in the fact that my insurance rate would double (since I'm young and would need collision on a financed vehicle) and that I'd never get a 1.9% loan. The lowest I've ever been offered was 5% for a used vehicle.

[CLiVE]

Originally posted by me&you


You're logic is narrow-minded and terribly flawed. A VERY high percentage of luxury and exotic cars are financed/leased. Paying "cash" for a depreciating assets is out and out dumb if there are other options for that "cash" that can, instead, provide a better return on the money.


I hear what you're saying, and agree...but I hate car payments. I have budgeted $30K every 5 years for a new car. ($6K/yr in savings, which is invested in the meantime) I generally buy used and let someone else eat the depreciation. Works for me....such is the case with my 02 325XIT.

[The Cosworth]

Originally posted by A790

Yes, but you aren't factoring in the fact that my insurance rate would double (since I'm young and would need collision on a financed vehicle) and that I'd never get a 1.9% loan. The lowest I've ever been offered was 5% for a used vehicle.

Sorry i missed the fact that you don't put full insurance on your vehicles. yes that would def. change it.






Originally posted by CLiVE
I hear what you're saying, and agree...but I hate car payments. I have budgeted $30K every 5 years for a new car. ($6K/yr in savings, which is invested in the meantime) I generally buy used and let someone else eat the depreciation. Works for me....such is the case with my 02 325XIT.


Although I understand the logic of me&you I feel the exact same way as you do. I could really care less on the $1000.00 I save by not financing/investing the cash. I am saving the $10,000 I need to buy out my car and with the saving I am putting in I will only need about $8300 to make the same thing. Compare that to someone who goes and finances the rest later who would pay 10 or 11 I am still making 3 g's the way I am doing it.


The more money I dont see going in and out of my account the more secure I feel. Even if I am 1 or 2% poorer

[01RedDX]

.

[me&you]

Originally posted by A790

Piss off with your "terribly flawed" perception of what my logic is. Why would I finance a $7,000 car? Hell, to get reasonable car payments and insurance payments (don't forget, I'm only 21) I'd have to put a stupid amount of cash down on the vehicle anyway, and I'd STILL have $400+/month insurance payments (PLPD + collision).

Think of it like this: the $500+ a month you spend on your car payment, I'm putting into long-term businesses or various investments. As far as I'm concerned, the $7,000 bought me a car for at least 3 years. I don't care about depreciation because it's an expense that I've budgeted and alloted for.

Go ahead and make your car payments. I'd rather take the money that WOULD have gone into a car payment and put it into a mortgage, business, investment, etc. I don't need a fancy car at this point, so I'm not going to pay for it.

"Piss off"? Thanks for proving my point.

I wasn't suggesting you finance a $7k car, which I don't think was the point of this thread.

The OP was wondering what it took to drive a "nice" car, relative to income. No one cares or needs to know what you (don't) do to drive a 15yo $7k car. Also, there aren't going to be any hard-facts as everyone's situation is different. In your case, you are younger and insurance costs are significant to you. Fair enough. But that wasn't the point of the thread.

When the numbers are smaller, it doesn't make as much sense (cents? hahaha). But when you start talking larger numbers, financing (especially an open-ended lease) is a much better idea than paying "cash" for a car. I'll repeat, it is stupid to put out a large amount of money on a depreciating asset when there are alternatives to finance it that allow you to invest the same amount at a much higher rate.

To the OP: Sorry for going off topic. There are too many variables to have a hard-and-fast rule to affordability. If I were to generalise, a cars value *can* be roughly 2/3 of a persons annual income. This mostly depends on priorities (other "toys", second/vacation home, travel etc).

[freshprince1]

Company Vehicle FTW!!!!!!

Wife's Maxima, paid for!!!!

Life without a car payment is bliss.

[rc2002]

Originally posted by brendankharris
The more money I dont see going in and out of my account the more secure I feel. Even if I am 1 or 2% poorer

How does fully owning a car make you feel more secure though? I'd think it'd be the other way around. The capital that's invested in your car is wasting away due to depreciation and you have no control over outside factors that will only make it worse (for example the flood of US imports or the exchange rate accelerating the depreciation of your car).

Buying appreciating assets and renting/leasing depreciating assets is the more secure way to go about it.

[me&you]

Originally posted by richardchan2002


How does fully owning a car make you feel more secure though? I'd think it'd be the other way around. The capital that's invested in your car is wasting away due to depreciation and you have no control over outside factors that will only make it worse (for example the flood of US imports or the exchange rate accelerating the depreciation of your car).

Buying appreciating assets and renting/leasing depreciating assets is the more secure way to go about it.

Thank you.

I'm noticing the people that are agreeing with this drive the nicer cars :thumbsup:

[rc2002]

Originally posted by freshprince1
Company Vehicle FTW!!!!!!

Wife's Maxima, paid for!!!!

Life without a car payment is bliss.

It's a pretty sweet deal, but company vehicles are taxable benefits - you still pay for them.

[Super_Geo]

Originally posted by A790
(don't forget, I'm only 21)

21 and making ~$150k/year (by what you're saying in this thread)? That's not too bad... those MLM's must be paying off for ya! ;)

[Weapon_R]

Originally posted by me&you

hen the numbers are smaller, it doesn't make as much sense (cents? hahaha). But when you start talking larger numbers, financing (especially an open-ended lease) is a much better idea than paying "cash" for a car. I'll repeat, it is stupid to put out a large amount of money on a depreciating asset when there are alternatives to finance it that allow you to invest the same amount at a much higher rate.

Some people won't understand this no matter how much you or how slowly you explain it. Watching too many rap videos has the effect of making people feel smart by paying for a vehicle in full. Lesson to the kiddies: properly invested, any lump sum amount of money should net you an ROI that would be lost by paying in full :thumbsup:

[clem24]

Originally posted by richardchan2002
Buying appreciating assets and renting/leasing depreciating assets is the more secure way to go about it.

This only holds true for people that intend on getting a new car every few years. Renting/leasing is "paying" for the depreciation + interest. If you plan on holding onto the car longer than say, 3 or 4 years, it probably makes more sense to buy, especially if you are getting a car with good resale, like a Toyota or Honda. Car dealers love leases cause it's a huge money maker for them. Their selling price at the end of the lease is always much more than the actual residual of the lease (i.e. residual might be $8000 but they can usually sell it for $13-14). Plus they get to ding you on all their little fees/over kms/dings/dents, etc... And don't forget they collected all that interest from you.

In most cases, you'll probably be in the same position financially if you bought a car vs. leased a car for 3-4 years (assuming you've sold the car at the end of the 3-4 years). The difference is if you leased, you'd have not had to tie up capital for the 3-4 years. But... If you spend $$$ and do not invest anyway, then it makes more sense to just buy the stupid car, because your money wouldn't have worked for you in the first place, and you would've had to pay interest on the lease, which probably amounts to about $2k or slightly more on your average $40,000 car over 3-4 years @ 5%.

Having said that, my opinion is... Buy used. Let someone else take the huge depreciation loss during the first few years, and then you take over. Most cars seem to lose the most value during the first 2 years or so, so 2 year old, low km cars seem to be the best deal. Plus there's also the other non-recoverable costs like freight, GST, "other dealer fees", etc...

And my opinion to answer the OP's question... I don't think there's any set formula for car vs. income. It's whatever you feel comfortable with. Buy an expensive car with low income and expect to be eating out at the dumpster for a few years. If you really want to know how much you can afford (and I *hate* this myself), do a monthly budget. And make sure you include ALL of your expenses at your CURRENT LEVEL (not a "what if I cut back on beer" scenario), and see how much you end up with at the end of the day. After this is established, then you can see where you can cut back.

[A790]

Originally posted by Super_Geo


21 and making ~$150k/year (by what you're saying in this thread)? That's not too bad... those MLM's must be paying off for ya! ;)
:rolleyes: In spades.

[The Cosworth]

Originally posted by richardchan2002


How does fully owning a car make you feel more secure though? I'd think it'd be the other way around. The capital that's invested in your car is wasting away due to depreciation and you have no control over outside factors that will only make it worse (for example the flood of US imports or the exchange rate accelerating the depreciation of your car).

Buying appreciating assets and renting/leasing depreciating assets is the more secure way to go about it.

I just makes me feel more secure in the fact that if I loose my job or take a pay cut, or want to downgrade to a better job with less pay. I don't need to worry about loosing my car.

Although yes I cannot rely on that as a source of income, I also do not have to worry about anyone ever taking it.






Like I have mentioned in my posts above, I agree with the statements of buying used (I was looking to buy a couple year old used but with the lease and interest rates it allowed me to get into a way better car than buying used could have).

I currently investing the extra money I have (about $500/$600) into both short and long term stuff. I am saving quite a bit, but yes the $400 extra a month would be nice to save had I not had my car.

I am 22 and have lots of extra cash IMO for someone my age so I don't regret any of the choices I have made. I pay for my girlfriend to go to university, rent, food, car, toys, vacation, etc. But because of what I have learned I will be taking a much different approach in the future. Buy a couple year old car, probably pay with decent amount of downpayment and then loan the rest.

Not sure I guess I will have to see what the market is like when I get there

[CLiVE]

Originally posted by richardchan2002


How does fully owning a car make you feel more secure though?

I'm guessing because it maximizes monthly cash flow.

[freshprince1]

Originally posted by richardchan2002


It's a pretty sweet deal, but company vehicles are taxable benefits - you still pay for them.

True, but its a minimal cost, and I don't drive it for much other than work, and you're only taxed on mileage to and from work, or any personal use mileage.

Still the cheapest way to drive a new vehicle.

[A790]

Originally posted by CLiVE


I'm guessing because it maximizes monthly cash flow.
99% of the population lives month to month. Not having a car payment makes it easier to balance the monthly statement.

[01RedDX]

.

[rc2002]

Originally posted by clem24

This only holds true for people that intend on getting a new car every few years. Renting/leasing is "paying" for the depreciation + interest. If you plan on holding onto the car longer than say, 3 or 4 years, it probably makes more sense to buy, especially if you are getting a car with good resale, like a Toyota or Honda. Car dealers love leases cause it's a huge money maker for them. Their selling price at the end of the lease is always much more than the actual residual of the lease (i.e. residual might be $8000 but they can usually sell it for $13-14). Plus they get to ding you on all their little fees/over kms/dings/dents, etc... And don't forget they collected all that interest from you.




Low residual is actually your friend. You'd have to be pretty dumb not to buy the car at the end of the lease and flip it for a quick profit. And they're actually not making any money when they collect interest from you - they could just as easily invested the money that you otherwise would've paid for the car had you not leased.



In most cases, you'll probably be in the same position financially if you bought a car vs. leased a car for 3-4 years (assuming you've sold the car at the end of the 3-4 years). The difference is if you leased, you'd have not had to tie up capital for the 3-4 years. But... If you spend $$$ and do not invest anyway, then it makes more sense to just buy the stupid car, because your money wouldn't have worked for you in the first place, and you would've had to pay interest on the lease, which probably amounts to about $2k or slightly more on your average $40,000 car over 3-4 years @ 5%.



Even if you don't invest, a GIC pays higher returns than the rates most manufacturers offer now. You will still end up ahead.



Having said that, my opinion is... Buy used. Let someone else take the huge depreciation loss during the first few years, and then you take over. Most cars seem to lose the most value during the first 2 years or so, so 2 year old, low km cars seem to be the best deal. Plus there's also the other non-recoverable costs like freight, GST, "other dealer fees", etc...


This is a better idea especially if you get a great deal on the car - on the odd occasion you can make money on them. Don't forget it still requires the cash up front and the onus may be on you for any repairs/maintenance.

[blownz]

I'm still a fan of paying cash for a vehicle. Lots of people say it is stupid to buy a depreciating item with cash and make it sound like it is easy to finance the vehicle and then invest that money and make a profit but it isn't quite so easy.

I have about 70k of cash tied up in two vehicles. Had I financed those vehicles I would be paying at least prime since they were both 1 year old vehicles when I bought them. So I would need to earn about 10% return on my 70k in order to cover the interest on the loan plus the taxes I would have to pay on that income.

Now there is no way to make a guaranteed return of 10% so you have to take some risk. Had I taken that risk last summer when I bought both vehicles I would probably be in some trouble right now with the markets the way they are.

I personally like replacing my vehicles about every 2 years. So paying cash is a safe easy way of doing it without ever getting into any trouble. With a wife at home with a child (and another in a few months) I'm not interested in taking risks like that to 'maybe' make a few bucks.

Sure I have a fair amount of money tied up in the vehicles but I still keep a decent amount of money invested plus I am always putting about 1-2k a month away to go towards my next vehicle.


Anyway, bottom line is there is never just one system that works best for everyone. Way too many variables.

[Rat Fink]

.

[jonnycat]

Originally posted by ricefarmer


by that logic if I make $100k/year I will only get approved to buy a $42k car.

Only the bank will care about your debt service... most factory or dealer financing/garbage lenders can aprove based on credit score alone.



No. By that logic, you would be able to "afford" a $3500/month payment barring any other loans / payments. At 5.9% x 60 mos you'd be looking at $181,500 vehicle.

Correct for the most part. As the beacon score reflects TDSR.

Personally my car is rougly 50% of what I make, I'm tired of making $500/ month payments, but when this lease is up I'm sure I'll convince myself to do it all over again.

Financially responsible people buy a $1000 car, run it for 2 years and sell it for $500-$750, to buy another $1000 car, giving them an ownership cost for as little as $10/month.