How much car can I afford? (2024)

Buying a car is an expensive endeavor. Aside from a home, it may be one of the largest purchases you’ll make in your lifetime. Whether you’re buying or leasing a car, there are many costs to keep in mind: down payment, monthly payments, maintenance, regular upkeep, the cost of gas, and the additional charge for charging an electric vehicle. When it comes down to it, how much car can you afford?

To comfortably afford your car payments, you should expect to set aside 10% to 20% of your monthly income to pay for your car.

Here’s a guide for figuring out how much you can afford to pay for a car based on your needs, budget, and long-term goals.

If you already have an auto loan, you might be paying too much for your car right now. You can refinance your auto loan with RateGenius and save big every month. Compare hundreds of lenders and see how much you can lower your car payment right now.

How to determine how much car you can afford

How much car you can afford comes down to a few factors: How much do you earn? What is your salary? Do you have a down payment (and how much)? What you can afford as a monthly payment?

Figure out your down payment

The cash value of a car you trade in can serve as a down payment, otherwise, you’ll have to come up with a lump sum of money. While leases often do not require a down payment – and you generally don’t need a down payment to buy a car – if you don’t make a down payment, you can expect higher monthly car payments and higher interest rates for auto loans. The larger the down payment you can afford, the smaller your total auto loan will be. And the less money you borrow as an auto loan, the less additional money you’ll end up repaying as interest on the total amount of the loan.

Decide if you should lease or buy

Both options may begood. Which is best for you depends on your needs and what you can afford. Leasing tends to come with lower monthly payments, and you only pay for the car’s depreciation (not its total value). With a lease, you’ll usually have the car for a few years. When the lease ends, you return it to the dealership. Leases tend to come with mileage restrictions, and there may be stipulations about additional charges for cosmetic damage. In some cases, normal wear-and-tear could end up costing you.

Buying a car is usually more expensive because you pay for the full value of the car. When you buy a car, you won’t have the mileage restrictions of a lease, or the potential extra charges for normal wear and tear. It’s more expensive but you own the car outright after your loan is paid in full.

If you’re still unsure of the right option, you can use a leasing vs. buying car calculator to see which option is right for you.

What’s your salary?

How much you earn directly impacts how much you can afford to pay in car-related expenses every month. Being able to set aside 10% to 20% of your take-home salary every month is ideal. However, some people end up paying more.

Your debt-to-income (DTI) ratio impacts your loan approval odds. The lower your DTI, the more likely it is you’ll get approved for the full amount you’re requesting to borrow. Lenders use DTI ratios to gauge the likelihood that you will successfully repay your car loan. A higher salary can lower your DTI ratio, which, in turn, can give you the option of qualifying for a larger car loan. And a larger car loan means you can choose from more types of cars.

Other car costs

There are other car costs to consider, including maintenance, gas, and insurance. Some websites have tools for estimating mileage based on your car model. Choosing a car with good gas mileage is one way to save on monthly costs.

You can also try a car insurance calculator to compare options and see which insurance plans are available to you. There are also discounts for age and a good driving record.

Calculate monthly car payment

You can use an auto loan calculator to figure out your monthly car payments. Adjusting the figures in the calculator can help you figure out the right monthly payment for you based on the total car cost, your down payment (or trade-in value), interest rates, and loan terms. Keep in mind that your interest rate is based on your credit score and history. The higher your credit score, the lower your interest rate will be. This directly impacts how much you’ll make in monthly payments on your car loan.

Once you find a monthly payment amount that works for you and your budget,price out cars accordingly.

Options for financing a car

There are lots of options for financing a car, whether you decide to lease or buy the car. Here are some options:

Traditional banks

Many traditional banks offer auto loans. Ifyou already have an account at a bank, it can be convenient to keep your banking and loan products at the same institution. You may decide to begin with your current bank when comparing options, but don’t forget to consider other options on the market. You may want to look at Bank of America or similar major banks for an auto loan.

Credit unions

Credit unions offer many of the same features as banks, but unlike banks they are not-for-profit financial institutions. For this reason, sometimes their interest rates are lower than banks and online lenders.

A credit union may give you instant approval after you submit an online application. Like with all financial products, it’s important to read the fine print to see how quickly your money will be disbursed after signing your loan letter. Both Consumers Credit Union and PenFed Credit Union offer auto loans.

Auto dealerships

Getting financing straight from the auto dealer can be easy because you will already be there buying the car. However, it’s one of the most expensive options to choose from. Interest rates are usually the highest at auto dealerships. You can research the financing options for a given dealership if you are planning on purchasing a car there.

Online lenders

Many online banks offer auto loans that are similar to traditional banks. Online lenders, such as Lightstream, offerauto loans that can put the money in your bank account the same day. If you already have a car, you can look into refinancing comparisons through Caribou, an online platform that lets borrowers view multiple available options without a Social Security number and a completely online application process.

A little research can save big money

Buying a car or leasing a vehicle is an expensive endeavor. However,you can lower your total costs by taking the appropriate steps and doing research ahead of time. If you get preapproved for a car loan before heading into adealership, you can be more confident you’re getting the lowest interest rate you’re qualified for based on your creditworthiness.

Doing your homework now can save you a lot later when it comes time to finally buy a car.

Frequently asked questions (FAQs)

How much car can I afford on 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.

How much car loan can I afford?

The amount of the car loan you can afford depends on your current expenses, your creditworthiness, your down payment, and how much you can pay per month towards a car loan.

How much car can I afford to lease?

When you lease a car the monthly payments are generally lower than the payments on a loan because with a lease you’re not paying back loan principle. But you also don’t end up owning the car, and once a car is paid off your costs drop dramatically. How much you can afford to pay each month depends on your income. Consider using a leasing vs. buying calculator to see what works for your budget and income.

How much car can I afford? (2024)


How much car can I afford? ›

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%. You can use a car loan calculator to calculate a monthly payment within your budget.

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

Financial experts recommend that your monthly payment should be around 10% to 15% of your monthly take-home pay. Additionally, your total monthly car expenses should be no more than 20% of your monthly income, and this includes your car payment, insurance, maintenance and gas.

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

To get an idea of how much car you can afford, a good rule of thumb is to pay no more than 35% of your annual pre-tax income. So, if you make $50,000 before taxes per year, your car purchase price should not exceed $17,500.

What car can I afford with a 70k salary? ›

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.

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.

Can I afford a car with 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 car can I afford rule of thumb? ›

The rule of thumb among many car-buying experts dictates that your car payment should total no more than 15% of your monthly net income, sometimes called your take-home pay (some might stretch this to 20%, but 15% is more conservative and therefore likely to make budgeting even easier).

What's a good down payment on a 30k car? ›

Consider putting at least $6,000 down on a $30,000 car if you're buying it new or at least $3,000 if you're buying it used. This follows the guidelines of a 20% down payment for a new car or a 10% down payment for a used car.

What is the 10 rule for buying a car? ›

The Car Buying Rule To Follow: The 1/10th Rule

The rule states that you should spend no more than 1/10th your gross annual income on the purchase price of a car. The car can be new or old. It doesn't matter so long as the car costs 10% of your annual gross income or less.

How much should I spend on a car if I make $200,000? ›

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.

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 credit score do you need for a 70000 car? ›

Your credit score is a major factor in whether you'll be approved for a car loan. Some lenders use specialized credit scores, such as a FICO Auto Score. In general, you'll need at least prime credit, meaning a credit score of 661 or up, to get a loan at a good interest rate.

Is $1000 a month too much 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.

What is the 50 30 20 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.

Is $10,000 dollars enough for a car? ›

Buying a used car for less than $10,000 can get you behind the wheel of a reliable and good-looking ride without costing you a fortune. However, you must prepare for potential repairs that can empty your wallet even though you might not break the bank with upfront costs.

What car can I afford with a 200k salary? ›

Get a nice Honda Accord or a Toyota Camry. Honda and Toyota make great cars. If you want something a little nicer buy an Acura TLX or a Lexus ES. If you prefer an SUV, get a Honda/Acura SUV., or an equivalent Toyota/Lexus.

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