What Is the ‘$1,500 Rule’ for Car Buying?

When shopping for a car, it’s easy to get caught up in wanting to buy a brand new one and finance it. Although doing so can yield a lot of money spent through interest payments over the years in addition to having a pesky monthly payment. On the other hand, buying a used car can save you a lot of money upfront and during the time of ownership, but how do you find one that’s within a reasonable budget? In that case, you can use the “$1,500 rule.”

The $1,500 rule doesn’t really pertain to the cost of the car

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While you might think that the “$1,500 rule” means that you’ll need to pull up your local Craigslist ads and peruse the sea of rusted-out beaters in search of a car that costs $1,500 – it doesn’t. Instead, that number is the result of a simple equation made to calculate the cost of ownership of a car per year. The main purpose of the equation is to find a car that is priced economically so it doesn’t cost an arm and a leg, or a hefty monthly payment, to drive it around for five years (or more).

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