How Much Car Can You Afford? (2024)

Buying a car is an exciting step in a person's life, especially for first-time car owners. Doing so can also feel overwhelming and confusing. When you start comparing options, you might find that cars are more expensive than you realized.

As the prices of both new and used cars continue to increase, you might ask, how much car can I afford? Before you buy, review this helpful guide that outlines how much you can afford to spend on a monthly payment, as well as tips to bring the cost down.

Ready to purchase a car? Easily compare auto lenders below.

Income-Based Guide to Buying a Car

Most financial experts recommend spending no more than 10% of your monthly take-home pay on a car. This percentage doesn't include all the expenses that come with car ownership, such as automotive insurance, fuel, maintenance, parking, and repairs. When calculating the total you can afford to spend on vehicle expenses each month, aim for around 20% of your take-home income.

For example, if you bring home $50,000 per year after taxes, your monthly take-home pay is probably around $4,167. Based on the 10% recommendation, you could reasonably afford to pay around $416 for a car payment each month.

Of course, you don't have to spend the full 10% of your monthly earnings on a car. If you find a cheaper model that works for your needs, it's always smart to save any extra money you earn for the future.

Calculating Total Car Expenses

Before you decide on a car, it's helpful to sit down and calculate how much the other expenses might be each month. These include repairs, maintenance, fuel, and insurance costs, and you must pay them in addition to your car loan payment.

Fuel Costs

Gas prices fluctuate, but you can look at averages in your area and plan accordingly. If you live in a part of the country where the cost of living is higher than average, you might want to budget on the high end, because fuel costs could go up.

Car Insurance

Another expense that comes with owning a car is automotive insurance. Every state has laws that require drivers to maintain certain minimum coverage amounts. The exact coverage requirements vary by state, but you can look up what your state requires to get an idea of what you'll have to spend to insure your vehicle.

Most insurance companies base the cost on several key factors:

  • Age of the policyholder
  • Driving history
  • Make and model
  • Location
  • Credit history

Some states restrict the factors insurance companies can use when calculating rates. Additionally, not all insurance companies place the same weight on each factor. You might qualify for a lower rate with one company based on its calculation formula.

Before you estimate how much your car insurance will cost each month, it's helpful to request a few quotes from various insurance companies. You can get a rough estimate of what you'll pay, which you can use when creating a car budget.

Repairs and Maintenance

All cars require maintenance and repairs, so it's important to budget for the associated costs. If you buy a brand-new car, the manufacturer or dealership might include free oil changes and other maintenance services for a certain period. But when that deal ends, you'll be responsible for paying to have the oil changed and tires rotated regularly.

Budget for these expenses by looking at the ownership cost for the vehicle you're considering. Some cars, including luxury and exotic models, cost more to maintain and repair than others.

If you buy an older vehicle, you might end up paying more in repairs as parts wear out and break down. By planning ahead, you can potentially avoid the frustration of an unexpected car repair or maintenance bill.

Use a Car Affordability Calculator

When you determine how much you can afford to spend on a car, the next step is plugging the numbers into a car affordability calculator. This useful tool shows you how much you can afford to borrow with an auto loan, based on your credit tier, estimated interest rate, loan term, and preferred monthly payment.

Some car affordability calculators use other data to determine the estimated payment on a vehicle when you input the total cost. You can use this tool to answer the question, how much car can I afford? As you assess the different aspects of an auto loan, you can decide on your preferred monthly car payment.

How To Determine What Car You Can Afford

As you consider how much you can afford to spend on a car, follow these steps in the process:

Assess Your Income

The amount you take home each month in income determines how much car you can afford. Based on salary, you might come up with a higher number, so make sure you're always using your take-home pay when calculating the 10% amount.

It's important to avoid getting locked into a car loan that is more than you can afford. Failing to make your monthly payments can negatively affect your credit score and make it more difficult to qualify for a loan in the future.

Consider Your Habits

If this isn't your first vehicle purchase, consider your previous track record with buying cars. Are you in the habit of keeping cars for multiple years, or do you prefer to move on to a new car within a year or two of purchasing it?

If you're in the former category, buying a new or gently used car might be your best option. For those in the latter category, leasing might be a better choice, because it provides the option to get into a new vehicle for less money.

No matter what you decide, make sure you can make your car payments every month while also paying for car insurance and other vehicle expenses.

Decide on a Loan Term

Car loans come with a variety of term options. Most lenders offer loan terms that fall between 24 and 84 months. A longer loan term means a lower monthly payment, but it also means you pay more in interest. It's easy to get excited about a new car, but that novelty will wear off and you could be stuck making payments toward it for many more months.

If possible, try to avoid getting into a loan that's longer than 36 months for a used car. If you're buying a new ride, aim for a term of 60 months or less. Paying off the car sooner helps reduce the amount of interest you'll pay over the life of the loan. Additionally, extending the term too much can cause you to owe more on the car than it's worth, especially after the first year when depreciation is high.

Another factor that affects the vehicle price is the interest rate. If you have good credit, you can typically qualify for a lower rate. Some manufacturers offer lower interest rates on new vehicle purchases, but the total cost of a new model will likely be more than what you'd spend on a pre-owned vehicle. Take all these factors into consideration when comparing loan options and interest rates.

Determine Your Down Payment

A down payment is the cash available to put toward a car purchase. You can't finance a down payment, so it's smart to save until you have about 10-20% of the total car price. A lender might require a certain percentage on a new car but could be more flexible on the down payment required on a used car.

When using a car loan calculator, you can input the amount you have to put down to get a better idea of how much you'll spend each month. A down payment lowers the monthly payment because it reduces the total amount you borrow from the lender.

If you have a vehicle to trade in at the time of purchase, you can further decrease your loan amount. You'll typically trade in your vehicle to the dealership where you're purchasing a new or used car. Including a trade-in as part of the transaction can also reduce how much sales tax you have to pay.

Identify a Target Price

When you've figured out your down payment amount and what you can borrow, add those numbers together to get your target price. Don't forget to include taxes and fees in your total, which vary by state. If you want to get a rough estimate of the additional cost, you can add 10% of the advertised sticker price or sales price of the vehicle you want to buy.

Compare Vehicles

Now that you know how much car you can afford, the fun begins. You can start shopping for vehicles that fit into your monthly budget, comparing features and options. If you decide to purchase a used vehicle, you might be able to save over buying new. As the demand for vehicles has increased, however, prices for both used and new cars have gone up.

Leasing vs. Buying a Car

In your search for a vehicle, you might wonder whether it's better to enter into a financing or leasing agreement. An auto lease allows you to rent a new vehicle from a dealership for an agreed-on period.

You must have a good credit score to qualify, and car dealerships often have other requirements for lessees. The monthly payment on a lease is typically much lower than what you'd pay each month if you financed the same car.

However, at the end of the lease term, you don't own the car. Instead, you can either enter into a new lease agreement for a different vehicle or purchase the car you were leasing for a fixed price.

Not all lease agreements allow buyouts, so if you're interested in this option, it's important to make sure it's available. If you don't purchase the vehicle, you might be subject to additional fees related to excess mileage and its condition.

How To Reduce Your Car Cost

If you want to pay less for a used or new car, consider a few factors:

Improve Your Credit Score

The first is your credit report. If you have a low credit score, you'll typically have to pay a higher interest rate, making your monthly car payment higher. By taking steps to improve your credit score, you might qualify for a lower interest rate.

Trade a Car In

Another way to reduce your total car payment is to bring a vehicle to trade in at the dealership. Although you might not get as much in trade-in value as you would selling the car privately, a trade-in can reduce the total amount you borrow from the lender.

Seek Additional Income Sources

If the car you want doesn't fit into the 10-15% recommendation outlined above, you might consider picking up another job. Increasing your annual income or take-home pay allows you to spend a little more on a monthly payment.

FAQ: How Much Can I Afford To Spend on a Car?

Below are frequently asked questions related to how much you can afford to spend on a car:

How much car can I afford based on salary?

It's best to spend around 10-15% of your take-home pay on a car payment. Some buyers confuse their gross income with their net income, which can make the amount you can afford go up. When calculating how much you can spend on a car, make sure you're always looking at your post-tax or net income.

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. On the lower end, your car payment would be $375.

What are the top auto loan companies?

Many lenders offer auto loans with competitive rates. Some buyers choose to finance through the dealership, which might make sense when purchasing a new vehicle. Others go through their personal banks or credit unions, as having an established relationship can qualify customers for lower rates.

When comparing lenders, look at factors like the interest rate you can get, the term options, and whether the loans have any limits. Credit unions, traditional lenders, and banks all have different formulas for determining who can qualify for loans.

Before you make an impulse buy and get a car that doesn't fit your budget, take some time to consider the purchase and the long-term implications. By making a better financial decision, you can protect yourself while ensuring you have the set of wheels you need to get around.

How Much Car Can You Afford? (1)

Elizabeth Rivelli

Finance & Insurance Editor

Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia,, Forbes, and Bankrate.

How Much Car Can You Afford? (2024)


How Much Car Can You Afford? ›

rule of thumb for how much your car payments should be. You should aim to keep your car payments around. 10% of your gross monthly income or below. So if you make 60 K a year, you should spend no more than $500 on your car payments.

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

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.

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.

How much is enough for a good car? ›

If you take pride in your frugality, 10–15% of your income sounds about right. If you value the reliability a newer, more expensive car brings, then 20–25% is a good benchmark. This gets you $5,000 to $7,500 on a $25,000 salary. Still not a lot, but you'll have more options.

How good of a car can I afford? ›

To determine how much car you can afford, financial experts recommend keeping your total monthly car payment at 10% or less of your gross monthly income, spending no more than 15% to 20% of your take-home pay on car expenses, and ensuring that total vehicle costs, including loan payments and insurance, don't exceed 20% ...

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 to afford a $100,000 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.

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 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.

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 a normal amount for a car? ›

Key Takeaways. At the end of 2022, the average new car cost over $49,500, and the average used car topped $26,500 as of early 2023. It is generally recommended that you cap transportation expenses at 10% of your monthly income.

How expensive is a normal car? ›

The average cost of new cars is now well over $48,000—up almost $6,000 from two years ago and about $10,000 from September 2020, according to Kelley Blue Book. That figure largely tracks with inflation, but there are many other factors at play.

How much car is too expensive? ›

A good rule of thumb is to limit your car payment to 10% to 15% of your monthly take-home pay. Overall transportation costs, including your car payment, insurance, maintenance, and gas, shouldn't exceed 20% of your after-tax income.

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.

How much should I spend on my first car? ›

You must include car costs, rent, groceries, shopping, and household expenditures, and enjoy extracurricular activities. When you have calculated your monthly expenses, you will have a better idea of how much you can put toward a car. For your first car, you can spend an average of $5000 to $10000.

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 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 car can I afford with a 70k salary? ›

Using an average interest rate, and a car payment calculator, you can afford a $19,000-20,000 car on a $70k salary using the 20/4/20 rule of car buying.

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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