Look beyond the monthly payment to determine how much buying that shiny new ride will really affect your finances.

Whether you’re in the market for a new model or a well-worn used vehicle, the first hurdle to leap in the car buying process is to determine what you can afford in the first place. If you’re fortunate enough to be paying in cash, you probably already know the answer to this question, but if you’ll be financing the purchase it becomes a bit more complicated to answer.

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The first step in the procedure is to determine the amount of your down payment. This will consist of the available cash in your bank account earmarked for this purpose, plus the value of your existing car as a trade-in, if you have one. At this point, all that’s necessary is a ballpark figure, which would be the “trade-in” value of your particular make and model in “good” or “average” condition as presented in online used-vehicle pricing guides like Kelley Blue Book or Edmunds.com.

Next you’ll want to contact one or more local banks or, if you’re a member, your credit union to see just how large a loan you may qualify for, for how long a period, and at what interest rate you’ll be charged, based on your down payment, income, and credit rating. You needn’t worry about securing a loan just yet – just get a rough idea of how costly a car you can afford and what your monthly payments will be. Personal finance experts suggest limiting monthly debt (including mortgage or rent, credit-card payments, and other installment loans) to 36 percent of one’s gross income.

Various web sites, including Edmunds.com and Timevalue.com feature online calculators that can easily and quickly give you a rough idea of what you can afford, based on your target monthly payment, loan length and interest rate, and your down payment and trade-in value. These estimates are based on standard industry data, but they don’t take into consideration your credit worthiness, which can greatly affect greatly financing cost and terms.

If you have late payments or defaults peppering your credit history, you’ll likely be charged a higher interest rate and/or be required to make a larger down payment than buyers who are in better financial standing. Generally, you’ll be required to put down at least 10 percent of the total cost of a new vehicle, though this figure may vary from lender to lender and is based on current loan rates and programs and a source’s willingness to make higher loan-to-down-payment-ratio loans and/or to those having less-than-pristine credit histories.

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While some lenders may require only a minimal down payment to those having top credit scores, perhaps as low as five percent, you may want to put down as much cash as your budget warrants to help minimize your monthly payments. Doing so also reduces the overall cost of interest and helps prevent against being “upside down,” which means you owe more money than the vehicle is ultimately worth. If this is the case, you’ll have to come up with the cash difference to pay off the outstanding balance if the vehicle is “totaled” in a wreck or you decide to trade it in or sell it before the loan is paid off. Keep in mind that if you ultimately choose a new vehicle that comes with a manufacturer’s cash rebate, that amount can be used to augment your down payment.

If you’ll be leasing a car rather than financing it, be aware that your credit rating will also affect your monthly payments, as leasing companies likewise charge higher rates of interest and/or require larger down payments for those having lower credit scores.

Looking beyond the monthly payment

Be sure to account for the added cost of state and local sales taxes and license/registration fees when calculating how expensive a car you can manage; depending on where you live, taxes and fees can jack up the price by 10% or more. And don’t forget to budget for the annual costs of state license plates and, where applicable, local vehicle registration.

You should also consider ongoing ownership costs when determining your out-of-pocket affordability for a given model. For starters, call your insurance agent before setting foot in a dealer’s showroom to determine what you’ll pay in premiums to cover any of the vehicles you’re considering. While car insurance rates are largely determined by personal factors, including one’s age, gender, address, and driving record, some cars are inherently cheaper to insure than others based on their repair costs, safety ratings, and claims frequency. While sporty cars are typically the most-expensive types of vehicles to insure from a liability-coverage standpoint, with family-minded minivans and passenger sedans generally being the cheapest, cost differences can exist even within competing models in the same category. And at that, some cars may cost more or less to cover from one carrier to another, so also be sure to shop around among competing insurance companies to find the lowest rates.

Though fuel costs remain reasonably affordable, you’ll still want to consider the cost of keeping the tank filled. You can easily check the Environmental Protection Agency’s mileage ratings and annual fuel costs for all makes and models sold in the U.S., both new and those from previous model years at fueleconomy.gov. According to the site’s fuel cost calculator, the difference between a vehicle that gets, say, an estimated 17 mpg and one that nets a combined 34 mpg will amount to a savings of $1,300 a year ($108.33 per month), based on 15,000 miles driven and gas at $2.32 per gallon; that figure will surely swell if fuel prices increase over time.

You’ll also want to pay attention to regular maintenance costs, including oil changes and inspections necessary to preserve new-vehicle warranty coverage; if you’re buying a used car that doesn’t come with a warranty, budget for repair costs you’ll likely make down the road. Both Kelley Blue Book and Edmunds.com break down five-year ownership costs online for most new cars and trucks by year of ownership. If you’re buying an older car, you can compare the average costs of many common repairs online at AutoMD.com.

Finally, keep in mind that whether you’re financing a vehicle purchase, leasing a car, or are paying cash, you can always pay less than what you can ultimately afford. You can pocket the difference, perhaps putting it to more profitable use elsewhere, like setting aside money into a retirement or college-savings plan, paying off credit card debt, or stashing it in anticipation of covering the cost of needed repairs down the road.

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