When it comes time to buy a new car, there’s a lot to consider: down payments, monthly payments, purchase price, interest rates, rebates and more. To help navigate the process, Edward Jones Financial Advisor Asa Jesse and certified public accountant Shannon Cornelison-Brown offered some helpful financial tips toward making a sound and sensible purchase.

How much is reasonable to spend on a new car?

It’s important for drivers to find a vehicle that suits their needs and driving habits, but one that also suits their budget. Jesse says prospective buyers should start by looking at their yearly take-home pay and applying the “20-4-10” rule to see how sustainable the purchase really is.

“Under that premise, the maximum you should spend on a car should never be more than 50 percent of your annual income,” Jesse says. “Make a 20 percent down payment. Finance it or pay it off over four years. Then that payment and everything else you spend on the car per month — insurance, maintenance, etc. — should exceed 10 percent of your monthly take-home.”

Buying

Both Jesse and Cornelsion-Brown say that saving up and buying a car outright with cash will generally land the best deal, but going all in at once isn’t always in the cards.

“We all seem know that feudal feeling, like we’re always going to be making car payments for the rest of our lives,” Jesse says. “But with every monthly payment, at least you’re gaining equity in the car. And once you have it paid off you can let it ride for a while and save.”

Cornelison-Brown says buyers have a bad habit of focusing only on their monthly payments, but shouldn’t lose sight of the total purchase price. Paying off one’s car quickly is generally a wise move, but Cornelsion-Brown says it’s also important to consider other outstanding debts and pay off those with higher interest rates more aggressively.

Lastly, Jesse says many dealerships will offer manufacturer rebates worth thousands of dollars or zero percent APR financing. Though both might look good on paper, Jesse says sellers still usually a find way to collect their interest on those deals and such incentives shouldn’t sway buyers into a deal that doesn’t fit them.

Leasing

In the long-term, leasing is generally more expensive than buying. But for drivers who are looking for more frequent vehicle upgrades and don’t mind spending more over time, a lease may be worth considering.

Cornelison-Brown says there are typically two types available and it’s imperative that drivers figure out which best aligns with their driving habits. The first is an “open-ended” lease in which the lessee assumes the depreciation extent.

“Someone that might be interested in an open-ended lease is someone who is planning on driving that vehicle for 95 percent of its usable life and through the majority of the depreciation,” Cornelison-Brown says. “That limits the financial-risk exposure.”

The second is the “closed-end” lease in which the lessor assumes the depreciation extent, but one in which drivers must be extra aware of their limitations.

“The closed-end lease might be better suited for those who have a more predictable driving pattern,” Cornelison-Brown says. “They know how much they’re going to drive and are well aware of their mileage. It’s also recommended for lessees who only intend to use that vehicle for up to 60 percent of it’s usable lifespan.”

Less-considered costs

As the quality, cost and comforts of a car all increase, so do recurring expenses. Drivers are reminded to factor in the cost of insurance, repairs, maintenance, gasoline, and specialty parts, especially tires.

“There’s always that relationship between age and maintenance costs,” Cornelison-Brown says. “At eight years and beyond with your vehicle, you’re going to start seeing an uptick in expenses. Don’t be caught off guard by that.”

One last tip before heading to the dealer

“We all get caught up in the emotion of things and cars are no exception,” Jesse says. “But when you’re buying a car or making any other big purchase, just sit down and do the homework. Understand what you can get for the money, shop around for the best prices you can find and then go in with a hard number that you won’t go beyond.”