How much car you can actually afford

Start from take-home, not salary

Use what lands in your account, after tax and deductions. A common ceiling is 15 percent of take-home for the loan payment alone, and 25 percent for the whole car: payment, insurance, fuel, and parking. On a take-home of 3,200 dollars a month that is a 480 dollar payment and 800 dollars all-in.

The costs people forget

Insurance runs higher for younger drivers, new licences, and some postal codes, and a lender-financed car must carry full coverage. Winter tires are effectively mandatory here and cost several hundred dollars every few years. Downtown parking can be a car payment on its own. Put real numbers on each before you set the price.

• Insurance: get a quote on the exact vehicle before you sign, not after.
• Fuel: estimate from your actual commute, both ways, five days a week.
• Winter tires and a rim set, plus seasonal swaps.
• Parking at home and at work, if either costs money.

From payment to price

Once you know the payment, the calculator on this site turns it into a vehicle price for your rate and term. Two rules of thumb: a longer term buys a more expensive car at the cost of more interest and a longer stretch owing more than the car is worth; and taxes are on top, 13 percent in Ontario, about 15 percent in Quebec, 14 percent in Nova Scotia, and 15 percent in the other Atlantic provinces.

When rebuilding credit, aim lower

If the point of this loan is to repair a score, the only payment that helps is one you never miss. Pick the payment you could make in a bad month, not a good one, and let the second loan be the nicer car.

A worked example

Take-home of $3,400 a month. Fifteen percent is $510 for the payment. At a rebuilding rate over 72 months that finances roughly $24,000 before tax, or about $21,000 of vehicle plus HST in Ontario. Insurance at $220, fuel at $180, and winter tires averaged at $25 a month bring the all-in to about $935, just over the 25 percent line. Dropping the vehicle to $17,000 brings everything back under.

When the approval is bigger than the budget

It often is. An approval is the lender's ceiling, not a recommendation, and a salesperson will happily fill it. Bring your own number, the one you worked out here, and hold to it. A payment you can make on a bad month is the only one that rebuilds credit; the bigger car can be the second loan.