Go to Main Content

Advertisement

By Bruce Sellery on April 30, 2012
Estimated reading time: 1 minute

Affordable wheels

By Bruce Sellery on April 30, 2012
Estimated reading time: 1 minute

A simple rule of thumb to help you decide how much you can spend on a car.

Advertisement

[brightcove video_id=”6023943602001″ account_id=”6015698167001″ player_id=”lYro6suIR”]Almost everyone has a dream car. For some it’s a sporty coup, a luxury sedan or a sleek convertible. For others the ideal car might be a pickup or even a minivan (although less likely). While everyone is drawn to a particular vehicle, the question you have to ask yourself before walking into a showroom is: what can I afford? To be blunt: the car you want may not be the one you drive off the lot. It’s a difficult question to answer. To complicate matters, there aren’t many guidelines on determining how much we can afford to spend on a vehicle. Manisha Thakor, a personal finance expert and author, attempts to fill the void. Thakor has devised a clever rule of thumb to figure out how much someone can spend on that new set of wheels. According to Thakor, the average person can afford to spend about a third of their after-tax household income on a vehicle. This assumes you’re putting 20% down and plan to finance the car over a five-year period at a fixed rate (she assumes 6% in her models). Some, of course, will choose to spend more than Thakor suggests with her rule of thumb, but doing so will mean cutting back in other areas—like housing and travel. To learn more about buying an affordable set of wheels, watch Bruce Sellery as he gets in the drivers seat to take Thakor’s thesis out for a spin.

About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.

Comments Cancel reply

Related Articles

How to work out for cheap in Canada

A new workout routine doesn’t need to be a heavy lift for your budget.

How to work out for cheap in Canada

Aritzia’s profit soars in Q3

The apparel retailer’s profit jumped 72% in Q3, as its e-commerce and U.S. net revenue spiked.

Aritzia’s profit soars in Q3

Strategic Shopper

The best streaming services in Canada: The value of each—plus a few free ones

We outline the movies and shows available on each streaming service, plus the cost, number of users and other...

The best streaming services in Canada: The value of each—plus a few free ones

Friends sit together on a rooftop overlooking a sky filled with hot air balloons

The best travel credit cards in Canada for 2025

These impressive Canadian travel credit cards can help turn your everyday spending into flights, hotels and more.

The best travel credit cards in Canada for 2025

Everything But Money excerpt: How much money do you need to not be stressed out?

In her new book, Jessica Moorhouse goes beyond the budget and gets to the root of our relationships with...

Everything But Money excerpt: How much money do you need to not be stressed out?

A woman uses her phone and laptop on a sunny patio with a cocktail

10 financial buzzwords we kept hearing in 2024

These 10 words and phrases captured 2024’s financial mood. From coffee badging to underconsumption-core, these are the trends on...

10 financial buzzwords we kept hearing in 2024

People walking at a Canadian airport, as talk about passenger rights changes are a buzz.

Changes to flight passenger rights in Canada

New rules clarify when travellers are compensated for flight disruptions.

Changes to flight passenger rights in Canada

A car steering wheel and a bowl of pasta, as symbols of how to get the best auto loan interest rate.

Car loan interest rates: What’s the best Canadians can get?

Car loan interest rates can be as confusing as a complicated recipe, and just as daunting to navigate. This...

Car loan interest rates: What’s the best Canadians can get?

Newcomer to Canada buying their first car at the dealership asking questions of the sales person about getting a car loan.

Newcomers to Canada

Auto loans for newcomers—questions to ask when buying your first car in Canada

Buying your first car in Canada is like any other major purchase. Ask a lot of questions, not just...

Auto loans for newcomers—questions to ask when buying your first car in Canada

A woman pumps gas into her sedan

What is the Canada Carbon Rebate? Plus, dates and amounts for 2025 rebates

The Canadian government is sending out its first carbon rebate of 2025. See who’s eligible and how much you...

What is the Canada Carbon Rebate? Plus, dates and amounts for 2025 rebates