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When You Should And Shouldn't Focus On Monthly Car Payments

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When it comes to car buying, the advice of focusing on total cost instead of monthly payments has been around for a while. But people are creatures of habit and get help but get caught up in the monthly payment mindset. There is, however, a right and a wrong way to do this.


Recently I had two people contact me right before they were about to close a deal, only to have second thoughts at the last minute and they wanted another opinion. Both people basically said the same thing: “The dealer said he could get me to X amount of dollars per month, but I’m not sure if this is a good deal.”

When I requested more details, it became pretty clear that they were not, getting a good deal. In fact, one person was getting a terrible deal.


I spoke with a woman in New Jersey who was shopping for a brand new Civic Coupe. She purchased a brand new Civic Si coupe years ago and returned to the same dealer assuming they would treat her well as a repeat customer.

She had a deposit placed on a new Civic and the papers were ready to be signed. That is when the dealer refused to tell her what her interest rate was. (That’s a big red flag, for starters!) She called me and I asked her to send me the full quote; when she did I was shocked. This dealer was so happy that they got a repeat customer they gave her a whopping $100 discount off a brand new Civic.

Her mistake was telling them that she wanted to pay $450 a month. The dealer took this opportunity to offer a pathetic discount as long as they hit that payment target. I ended up finding her the same car $2,600 off the sticker price dropping her payment to closer to $400 a month.

When you are purchasing a car, don’t tell the dealer how much you want to pay per month—instead, focus on the total cost of the vehicle. Now this is where dealers will jump in and say “We need to know the payments to make sure they are selecting a car they can afford.” My response to that is it’s the customer’s responsibility to know what he or she can afford.


Let me repeat that: it is the buyer’s responsibility to know what vehicles are appropriate for his or her budget. Take your target monthly payment and run it through a loan calculator based on your loan term, then subtract estimated taxes and fees from the total. Now you have a spending limit on what your next car should cost.

However, do not make the mistake of using an extremely long loan term to set your spending limit higher than you should. I was talking with a young man the other day interested in a Fiesta ST. He mentioned that the current deals are pretty good because they are offering zero percent financing for 84 months. The first part is good; the second, not so much.


While it is tempting to have your car payments low by taking a seven-year loan, I told him the risk of being underwater on that kind of loan with a minimal downpayment is much higher. The general rule of thumb is to factor a loan for about 60 months, maybe in some cases 72 months, and base your spending cap from there.


Unfortunately, this method doesn’t always work if you are leasing car. The reason is because calculating a lease payment is not as simple as dividing the total cost of the car over a loan term at a specific interest rate. Since the difference between the sale price and residual value plays such a big role in determining lease payments cars within the same price range can have wildly different lease programs.

For example, I was recently working with a gentleman who wanted to lease a crossover and had a target payment of around $350 a month. He had it narrowed down to the Acura RDX and the Nissan Murano. With the amount of equipment he wanted the Murano topped out at almost $40,000 and seemed to be out of his price range. However, given the steep discounts, the Nissan ended up around $360 a month, while the $34,000 Acura was almost $400 a month.


When shopping for leases it may take a bit of trial and error to see what cars you can afford. This is where it may be helpful to tell your salesperson where your target payment is since they run these numbers on a regular basis and may be able to structure a deal that will work best for you.

What you do is pick a vehicle and be very specific about trim and options, then decide on terms like down payment, miles, and how long you want to lease. Also, be honest about your credit situation. Most lease quotes will be based on a tier one (700+ FICO) credit rating. If your credit score is less than perfect, tell the dealer where you stand so you can get an accurate number.


Once you have that preliminary quote, use it as a ballpark to see if there is a better deal to be had. Make sure you are comparing quotes based on the same MSRP and terms. If other dealers come back with better payments, great! But it’s also possible that the first quote you got was the best possible price. The only way to know for sure is to shop around.

There is nothing wrong with focusing on the monthly payment, providing that you are doing it in a way that leaves you with a financially responsible decision and ensures you are getting the best deal for your next car.