I believe many new car buyers will have problems determining a budget when buying a car. I will show you how to calculate your budget based on your ability to finance the car in 5 steps.
Step 1 – What is the amount you can fork out for the deposit? D = ____
Step 2 – What is the amount of monthly installment you can afford for the car loan. M = ____
Please note that you must take into account running cost of the car when you determine this amount. This means that, this amount is your monthly car budget minus away running cost. If you are unsure about the running cost you may incur, see Cost of Car Ownership. You should set aside some “free cash” for contingencies and not stretch your budget too much.
Step 3 – What is the current interest rate for car loan? i = ____
Step 4 – What is the length of loan repayment period you intend to take (in years)? T = ____
Note that maximum car loan period in Singapore is 10 years (for new cars). Usually, buyers take 5 to 7 years loan.
Step 5 – To find the price of car you can afford, P = ?
Here is the equation: P = [12TM + D(1 + iT)]/(1 + iT)
Example:
1) Deposit, D = $5,000
2) Monthly installment, M = $500
3) Interest rate, i = 3.5%
4) Loan period, T = 7 years
5) P = [12 x 7 x 500 + 5000 x (1 + 0.035 x 7)]/(1 + 0.035 x 7) = $38,735
Thus, this means that I can only look at cars selling at $38,735 or below. I believe this is a good method to determine your car budget based on your financial ability such that you do not over commit to car loan.
The above calculation is in Singapore context and thus, maybe different from your country’s. Then again, I think it should not differ much 
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