Every day, I have a phone call that goes something like this, "Do you have any cheap cars for sale?" Of course, everyone has a different definition of cheap, so I ask all my usual questions and find out that they are looking for something for about 200 dollars a month. Right away, this clues me in that they don't have a spare 10 thousand hanging out in their piggy bank.
A good rule of thumb, when you are trying to decide how much car you can afford, is this: for every 10 thousand financed, expect your payment to be around 200.00 a month. Each extra 1000.00 adds about 20 dollars a month in payment.
Here is where it can get interesting though. If you are one of the fine folks with a pretty good to stellar credit rating, the finance rate on a new car will usually be MUCH less than an older one, so in effect, your monthly payment on a 2009 Civic with 40 thousand miles can be the same as on a brand new one.
Car manufacturers have a vested interest in moving as many of their units as they can each month so they offer special rates to approved customers. Used cars are generally financed with other companies (although some manufacturers offer financing for their certified, used vehicles, it generally isn't as good of a rate as new.)
Back to the 10 thousand dollar car. There aren't a lot of them out there at big dealerships. One of the reasons is the used car market has gotten tighter in recent years. Things like the cash for clunkers got rid of a lot of them and the fact that the average car on the road is getting older is another reason. In my experience, the 10k car is generally not one of the top three Japanese brands and tends to be a statistically less reliable brand. (Or perceived as less reliable which affects the value too.)
So what should most people do?
Decide on a budget. If you are financing like most of us, a range of what you can pay each month is helpful. Your salesperson should be able to present you with a list of cars in that range with the features you want.
If it is new, consider an extended warranty to cover you for the financing term.
If it is used, REALLY consider an aftermarket warranty. Read the fine print and make sure it covers all the things that a standard 3 year/36k warranty covers. Those things are air conditioners, window motors, navigation systems...basically the stuff that the 5 year/60k warranty (the one for the powertrain) does not cover.
(Of course, if you have plenty of savings and a 2000.00 shop bill is no biggy, then skip this part.) In other words, the stuff that tends to break in a car after the general 3 year and 36k mile warranty is EXPENSIVE. Plan for it somehow. I have seen far too many cases of customers that didn't buy a warranty on a well-used car and have the thing stop running on them and they still have to make the payment. It is a bad situation to be in and I wouldn't wish it on my worst enemy.
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