auto

Can't afford to buy? How about a car lease

Tara Baukus MelloDear Driving for Dollars,
I have a 1995 car with more than 200,000 miles that finally stopped running -- in the middle of the road -- and I'm thinking it's time to buy something newer. I have a preapproved loan at $18,000 at a 15 percent annual percentage rate. The dealership with the certified pre-owned car I am interested in says I need at least $2,000 down, but I don't have money for a down payment.

It's my first time buying a car without my husband's financial support, but it's important to me to have that freedom where I can do things on my own, including buying a car on the measly salary I have! I really like the car, but perhaps I am going over my means. What do you think?
-- Imelda

Dear Imelda,
Good for you for standing by your old car for so long and avoiding a car payment. It's even better that you are seeking financial advice to help you stand on your own. A general rule of thumb is to allocate no more than 25 percent of your household income to all the car expenses in your household. That includes the car payment plus gas, insurance, maintenance and repairs. To see what it will cost to own the car, use the calculations outlined in the Bankrate story, "What will it cost to own your next car?"

Since you've been preapproved at a 15 percent interest rate, I'm guessing that you either have not-so-good credit or that perhaps you are lacking in your own credit history. Your best bet would be to try to get that interest rate down before you buy a car. If you haven't already shopped around for a loan, contact any lenders you currently do business with to see about getting preapproved. Reach out to your local credit unions, which frequently offer better rates. For nationwide lenders, simply enter your ZIP code, using Bankrate.com's auto loan rates tool. Within a couple of days, you should be able to determine if the 15 percent rate is the best you can do.

If you will be spending more than 25 percent of your household income to own and operate this car, then consider getting something cheaper. There are many good used cars that can be had for less than $18,000. Another option would be to do a car lease takeover. There are car leaseholders out there anxious to unload their contracts who are paying less than $300 per month. Some car leases are even available for $150 to $199 per month. It seems like you feel you could afford about $428 per month (an $18,000 car loan at 15 percent for five years), so you could get a cheaper lease and save the money you would have been spending on your car payment as a down payment on your next car loan while also potentially increasing your credit score at the same time. That would put you in a better position when you apply for a car loan.

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If you have a car question, email it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories. Follow her on Facebook here or on Twitter @SheDrives.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

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Tara Baukus Mello

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