How Much Car Can I Afford? Understanding the Numbers - NerdWallet (2024)

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When it’s time to buy a car, you’ll probably want to know: “How much car can I afford?”

Financial experts answer this question by using a simple rule of thumb: Car buyers should spend no more than 10% of their take-home pay on a car loan payment and no more than 20% for total car expenses, which also includes things like gas, insurance, repairs and maintenance.

Once you know the monthly car payment you can afford, you can calculate how much you can afford to borrow for your car loan. With that, you can set a realistic target price and finally answer the question, “What car can I afford?”

Use our car affordability calculator to quickly see what’s right for your budget.

How to use the car affordability calculator

Most car payment calculators start with the total loan amount you want and other inputs to see what your monthly payment would be. NerdWallet’s car affordability calculator starts with the monthly payment you choose and shows you what loan amount you can afford, and how the APR and loan term change the total loan amount.

To use NerdWallet’s car affordability calculator, input the monthly car payment you’ve decided you can afford and the length of loan you want. Then select “new” or “used” and your credit tier. (You can check your credit score for free, if you don’t already know it.)

NerdWallet estimates an APR based on the average APR for new or used car loans in that credit tier using data from Experian Information Solutions. You can try different loan terms and adjust the inputs to further customize your loan amount.

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How to determine how much car you can afford

Calculating how much car you can afford before you visit the dealership can save you hundreds, maybe thousands, of dollars in the long run.

Here are three key steps to follow:

1. Calculate the car payment you can afford

You may wonder, “How much car can I afford based on salary?” Instead, you’ll want to base it off your take-home pay — the amount you make each month after taxes — to get a more accurate picture of your finances.

NerdWallet recommends spending no more than 10% of your take-home pay on your monthly auto loan payment. So if your after-tax pay each month is $3,000, you could afford a $300 car payment.

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Check if you can really afford the payment by depositing that amount into a savings account for a few months. Take note of what you’re giving up to do so, and determine if it works for your budget.

Be realistic about how long you can or want to be making this monthly payment. The new-car excitement will wear off in a few months; soon, you'll look at that vehicle the same way you do at the one currently in your driveway. NerdWallet recommends maximum loan terms of 36 months for buying a used car and 60 months for new cars.

Taking a longer loan term will reduce your monthly payment, but over time you’ll pay much more in interest. Also, a longer loan term increases your risk of becoming upside-down on the loan, meaning you owe more than the car is worth.

2. Calculate the car loan amount you can afford

Now that you’ve calculated your affordable monthly car payment amount, you can get a sense of how much you can borrow. This will depend on several other factors, including:

  • Your credit score, which will in part determine your annual percentage rate, or APR, on the loan.

  • Your loan term, or the number of months you have to pay off the loan.

  • Whether you buy new or used. New car loans tend to have lower APRs.

With a monthly payment, an estimated APR and loan term, the car affordability calculator works backward to determine the total loan amount you can afford.

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3. Set a target purchase price

The total loan amount you can afford isn’t necessarily the price of the car you can afford. If you’re making a down payment or trading in your old car, you’ll be able to buy a higher-priced car, or borrow less money. (Use our auto loan calculator to see how your down payment or trade-in credit affects your monthly payment and loan amount.)

Once you estimate the car loan amount you can afford, and assuming no trade-in credit or down payment, you can begin to get a realistic idea of the purchase price you should consider. In the current shortage-driven market, expect to pay a market adjustment — extra profit tacked right onto the sticker price — on many popular models.

Don’t forget: To get your total car price, you’ll need to factor in sales tax and fees, which vary by state, in addition to the advertised cost of the car. A simple way to estimate these extra expenses is to add 10% to the advertised price of the car (even though you might negotiate a lower price). For example, if you see a car advertised for $20,000, assume your total cost — the “out the door” price — will be $22,000.

To get a more precise estimate, here’s a breakdown of the typical extra costs:

  • Sales tax: Typically 5% to 10%, and may include state, county and local taxes.

  • Registration fees: Estimate these fees by using your state’s department of motor vehicles site.

  • Documentation fee: Typically ranges from $75 to $895, depending on your state.

Finding a car you can afford

Once you have your target purchase price, you can use an online car-shopping site to find different models listed by price. Many of the sites, such as Edmunds, Autotrader and CarGurus, have car-buying apps as well.

But remember to set the bar low. When searching for cars, set your maximum price below the total amount you think you can afford. Sales tax and fees can easily add up to an extra few thousand dollars.

How Much Car Can I Afford? Understanding the Numbers - NerdWallet (2024)

FAQs

How Much Car Can I Afford? Understanding the Numbers - NerdWallet? ›

Financial experts answer this question by using a simple rule of thumb: Car buyers should spend no more than 10% of their take-home pay on a car loan payment and no more than 20% for total car expenses, which also includes things like gas, insurance, repairs and maintenance.

How do you calculate how much you can afford for a car? ›

How much car can I afford based on salary? According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%.

What is the rule for how much car you can afford? ›

20% down — be able to pay 20% or more of the total purchase price up front. 4-year loan — be able to pay off the balance in 48 months or fewer. 10% of your income — your total monthly auto costs (including insurance, gas, maintenance, and car payments) should be 10% or less of your monthly income.

Is $600 a month too much for a car? ›

How much should you spend on a car? Whether you're taking out an auto loan or a personal loan to pay for your car, it's a good idea to limit your car payments to between 10% and 15% of your take-home pay. If you take home $4,000 per month, you'd want your car payment to be no more than $400 to $600.

What car can I afford with a 40k salary? ›

on the price of a car. is not to exceed 35% of your gross income. That means if you make $40,000 a year, the cars price should not exceed $14,000. If you make $80,000, the cars price should be below $28,000. And at 150 k salary, that means your max car price should be 50 2500.

How much car can I afford on a $60000 salary? ›

How much should I spend on a car if I make $60,000? If your gross salary is $60,000, your take-home monthly pay is probably around $3,750, assuming about 25% of your pay goes toward taxes and other expenses. Based on the 10-15% calculation, you should spend no more than $562.50 on a monthly car payment.

How much car can I afford if I make $70000? ›

How much car can I afford with a 70k salary? Based on the 20/4/20 rule, with an average interest rate, you can afford a $19,000-20,000 car on your $70k salary.

How much should I spend on a car if I make $100,000? ›

Starting with the 1/10th guideline, created and pushed by Financial Samurai, this guideline states: buy a car in cash that costs less than 1/10th your gross annual pay. If you make $50,000 you should buy a car in cash worth $5000. If you make $100,000, the car you buy should be worth no more than $10,000.

What is the 20 4 10 rule for cars? ›

Basically, the rule goes that you provide a down payment of 20% of the balance, sign a loan for a four-year period, and pay no more than 10% of your monthly income on car expenses. These expenses include any money you put towards your new vehicle, including gas, insurance, and loan payments.

What is the 20 3 8 rule? ›

The 20/3/8 car buying rule says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments. As we go into depth to determine how realistic this rule is, you may consider whether it can actually help you budget for your next car.

What is a realistic monthly car payment? ›

The average monthly car payment for new cars is $726. The average monthly car payment for used cars is $533. 39.20 percent of vehicles financed in the third quarter of 2023 were new vehicles.

Is $1,000 a month a lot for a car? ›

For large luxury models, $1,000-plus payments are the norm. Even a handful of buyers with subcompact cars have four-figure payments, likely due to having shorter loan terms, poor credit, and still owing money on previous car loans, according to Edmunds analysts.

Is it bad to pay 500 a month for a car? ›

As a general rule, it's recommended that your monthly car payment not exceed 20% of your take-home pay. So, if your monthly take-home pay is $3,000, your car payment should be no more than $600.

Is 40k a good salary for a single person? ›

A $40,000 salary may be sufficient for an individual in a low-cost area, but it may not be enough for a family to live comfortably in most parts of the US. Rising inflation has made it more challenging to live on a $40,000 salary, but it still exceeds the poverty threshold for families.

What car can you buy with 50k salary? ›

Nick Musica, founder of Cash for Your Junk Cars, said the Hyundai Elantra “tops the list of affordable models.” He cited its record of reliability, accessible purchase price, fuel efficiency and low maintenance costs. The 2024 Elantra starts at $21,475 and gets an impressive 36 combined mpg.

What car can I afford with a 50k salary? ›

If you make a $50,000 gross salary, after taxes (depending on where you live) your monthly take-home pay is roughly $3,230. Based on the 10% rule, you could afford, at most, a $323 monthly car payment. If you take out a 60 month (5 year) auto loan at 8% interest, you can afford a $17,000 car.

What should your salary be to afford a 50k car? ›

If you wanted to stick to this rule of thumb and buy a $50,000 car, you would need a monthly take-home income of at least $7,240 if you got a car loan at a below-average rate and stretched out your payoff time for a long time. Many people will find that purchasing such an expensive car really isn't affordable.

How much money should you make to afford a 100000 car? ›

In that case, you need to consider groceries, utilities, and other household expenses. To afford a $100,000 car, it's probable you need to make $300,000 a year conservatively after taxes. For this example, we use our car payment calculator and approach it using the price of the car of $100,000.

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