Let’s get you startedSign in or create an account to view your personalized quotes.
By continuing, you agree to Insurify's Terms & Conditions.

How Much Car Can You Afford? Calculate Your Budget

You shouldn’t spend more than 10%–15% of your annual income on a car.

Lindsay Frankel
Written byLindsay Frankel
Photo of an Insurify author
Lindsay FrankelInsurance Writer
  • 5+ years in auto insurance and personal finance writing

  • Featured in top personal finance publications

Lindsay is a widely published creator of auto insurance content. She also specializes in real estate, banking, credit cards, and other personal finance topics.

Featured in

media logomedia logomedia logomedia logo
Matthew Gross
Edited byMatthew Gross
Matthew Gross
Matthew GrossEditor

Matthew Gross is an insurance editor at Insurify. He aspires to help readers make more informed decisions through well-crafted content. Matthew’s background in journalism and SEO taught him the value of keeping readers at the core of his work. Prior to Insurify, Matthew brought his user-centered approach to his work with global brands like Apple and Adobe. He holds a bachelor’s degree in Journalism from Illinois State University.

Mark Friedlander
Reviewed byMark Friedlander
Mark Friedlander
Mark FriedlanderSenior Director, Media Relations, Insurance Information Institute
  • Media relations director for Insurance Information Institute

  • 20+ years in insurance and communications

  • Impartial, independent expert

As Senior Director, Media Relations, for Insurance Information Institute, Mark serves as the non-profit’s national spokesperson, sharing information and education on a wide array of insurance issues.

Konstantin Halachev
Data reviewed byKonstantin Halachev
Headshot of Konstantin Halachev, VP of Engineering at Insurify
Konstantin HalachevVP of Engineering & Data Science
  • 7+ years experience in data analysis

  • Ph.D. in Computational Biology

Konstantin has led data teams across multiple industries, including insurance, travel, and biology. He’s led Insurify’s engineering team for more than three years.

Updated

Advertiser Disclosure

At Insurify, our goal is to help customers compare insurance products and find the best policy for them. We strive to provide open, honest, and unbiased information about the insurance products and services we review. Our hard-working team of data analysts, insurance experts, insurance agents, editors and writers, has put in thousands of hours of research to create the content found on our site.

We do receive compensation when a sale or referral occurs from many of the insurance providers and marketing partners on our site. That may impact which products we display and where they appear on our site. But it does not influence our meticulously researched editorial content, what we write about, or any reviews or recommendations we may make. We do not guarantee favorable reviews or any coverage at all in exchange for compensation.

Why you can trust Insurify: Comparing accurate insurance quotes should never put you at risk of spam. We earn an agent commission only if you buy a policy based on our quotes. Our editorial team follows a rigorous set of editorial standards and operates independently from our insurance partners. Learn more.

How much you can spend on a car depends on your monthly budget and the costs associated with your vehicle’s make and model. Your income, expenses, and debt determine how much you can put toward monthly auto expenses. And factors like car loan payments and car insurance premiums affect the maximum price you can pay.

If you finance your car, your credit history, down payment, and loan term will determine your car payment. We’ll walk you through how to figure out how much to spend on a car, including how to calculate a rough estimate based on your salary.

Quick Facts
  • Many experts recommend spending no more than 20% of your pre-tax income on monthly car expenses.[1]

  • The total cost of a car includes not just your monthly auto loan payment, but also car insurance, maintenance costs, and state fees.[2]

  • Long-term car loans offer more affordable monthly payments, but they make your vehicle purchase much more expensive in the long run.[3]

How to calculate how much car you can afford

How much you can afford to spend on a vehicle depends on several factors, including your monthly income, debt, expenses, car maintenance costs, and vehicle financing.

Experts offer a few guidelines for determining how much to spend on a car. Your total monthly auto expenses should be no more than 20% of your gross monthly income. And the purchase price of the car should be no more than 10%–15% of your annual income.

These are just starting guidelines. But you can use them and the steps below to determine how much you can afford to spend on a car.

  1. Add up your income. Calculate your total take-home pay from all sources.[4]

  2. Subtract your monthly expenses. Deduct your expenses, including your rent or mortgage payment, utility bills, and average grocery spend.

  3. Determine your car budget. Decide how much remaining income to put toward auto expenses. Make sure you don’t stretch yourself too thin, because unexpected expenses may arise.

  4. Consider your financing options. Decide whether you’ll pay cash, lease the car, or take out an auto loan. If you finance it, determine your down payment and estimate your interest rate based on your credit. Use an auto loan calculator to estimate your monthly payment.

  5. Calculate fuel and insurance costs. Estimate your fuel costs for your specific make and model, and use an insurance comparison site to get car insurance quotes.

  6. Account for maintenance costs, taxes, and fees. Use a source like Edmunds or Kelley Blue Book to estimate the average maintenance and repair costs, sales tax, and other fees in your state.

  7. Check affordability. Check whether the total falls within your monthly auto budget. If not, try again with a more affordable vehicle or adjust your insurance costs.

Find Cheap Car Insurance

Find coverage for as little as $45 per month

Excellent
4.7 out of 5 based on 12,593 reviews
Secure. Free. Easy-to-use.
ProgressiveLiberty MutualAllstate

Key factors that affect car affordability

Factors like your household income and the costs associated with buying a vehicle affect how much car you can afford. Let’s explore each factor, so you can understand how it influences your car-buying budget.

Income and take-home pay

Lenders use your gross monthly income to calculate your debt-to-income (DTI) ratio. Your DTI ratio measures your ability to repay an auto loan.[5] But you can use your take-home pay to calculate your budget for your car payment, insurance premiums, and maintenance.

Make sure to add up all sources of income after taxes, including paychecks, self-employment income, government benefits, alimony or child support, and investment income.

Debt and monthly expenses

Making payments on debts, like credit cards, student loans, and personal loans, will reduce the amount of money you can put toward auto expenses. That’s why auto lenders consider your existing debts when deciding whether to approve your car loan application.

Most auto lenders prefer a DTI ratio lower than 36%, though some will consider higher ratios. You can find your DTI ratio by dividing your total monthly debt payments by your gross monthly income. Then multiply the result by 100 to get a percentage.

Down payment and trade-in value

Trading in your used vehicle or making a cash down payment will reduce the interest rate and monthly payment on your auto loan for the car you’re financing.[6] Experts typically recommend putting down 20% when buying a car for the best loan rates and terms.[7]

If you can’t afford to make a 20% down payment, you can purchase gap insurance to cover the difference between your car’s value and your loan balance.[8] But that will be an added monthly expense.

Loan term and interest rate

Your credit history significantly affects the cost of financing a car. You’ll typically qualify for lower interest rates if you have a good credit history.[9] The terms of your auto loan repayment also matter. Some lenders offer seven-year car loans with lower monthly payments. But those loans come with higher interest rates and higher overall borrowing costs.

Extending your loan term by one year or increasing your interest rate could mean adding thousands of dollars to the total cost of your vehicle.

Taxes, fees, and registration costs

Taxes, fees, and registration costs vary by state, so it’s important to consider these when building a car budget. For example, your budget will stretch further if you buy and register a car in a state with no sales tax, like Delaware or Montana.

Your state fees may also affect your decision to buy a new or used car, and whether to get a gas or electric vehicle. For example, Colorado offers a sales tax exemption on used cars valued at $20,000 or less, while brand-new cars are subject to a higher rate based on their MSRP.

How car insurance affects affordability

Your car insurance premium is a key part of your monthly vehicle budget. The value of the vehicle, its repair costs, safety and security features, and theft and safety record all affect your car insurance rate.

It’s often cheaper to insure an older used car than a new one. But many insurers offer discounts for vehicles with premium safety features.[10]

Rates can vary from one insurer to another, even for the same coverage, because every auto insurance company calculates premiums differently. It’s best to compare car insurance quotes from a few different companies to get the best deal. You can use an insurance-comparison site to make the process more efficient.[11]

ESTIMATED RATE: $173 per month
40% of similar drivers pay less for coverage. Save up to $1260 per year by comparing quotes!
Quoted premiums and averages sourced from Insurify's database of more than 97 million car insurance quotes from 120+ partner providers. Actual rates may vary based on each policy buyer's unique driver profile.

How to estimate your total cost of ownership

The total cost of car ownership goes beyond the sticker price. It includes expenses after you drive the car off the lot, including:

  • illustration card https://a.storyblok.com/f/162273/150x150/9340dd77eb/car-and-driving-96x96-blue_038-fuel.svg

    Fuel

    Every vehicle has a different annual fuel cost, based on the car’s fuel efficiency and your annual mileage. You can use the U.S. Department of Energy’s vehicle cost calculator to get an estimate for a specific make and model.

  • illustration card https://a.storyblok.com/f/162273/150x150/a81c88dee8/car-service-96x96-orange_041-oil-change.svg

    Maintenance

    Maintenance costs include services that keep your car running properly after normal wear and tear, like oil changes. Costs vary depending on the car and mileage.

  • illustration card https://a.storyblok.com/f/162273/150x150/6a92eb6099/insurify-icons-auto-green-96x96_005-insurance.svg

    Insurance

    Get a few car insurance quotes for the car you want to purchase. Make sure to compare similar coverages for each insurer.

  • illustration card https://a.storyblok.com/f/162273/x/73ee7a876e/repair.svg

    Repairs

    If you have full-coverage insurance, the cost of repairs after an accident will be limited to your deductible. But repairs due to a mechanical breakdown can vary widely, unless you have mechanical breakdown insurance.

  • illustration card https://a.storyblok.com/f/162273/150x150/d4e67f33b5/banking-96x96-yellow_015-dollar.svg

    Taxes, registration, and fees

    Sales tax and other state fees, such as license, title, and registration fees, vary by state and vehicle. Visit your state’s Department of Motor Vehicles website to get an estimate.

  • illustration card https://a.storyblok.com/f/162273/150x150/1f77dd73f2/money-96x96-orange_042-invoice.svg

    Financing

    Unless you can afford to buy your car in cash, you’ll need to factor in borrowing costs.

Should you buy new, used, or lease?

Buying a new car typically costs more, but you usually have lower maintenance costs for the first few years than with a used car. Leasing a car may be cheaper than financing a new one, but it may come with additional fees or mileage restrictions. The table below outlines the pros and cons of each way you can buy a car.

Buying Option
sort ascsort desc
Pros
sort ascsort desc
Cons
sort ascsort desc
New
  • Newest safety and security features
  • Promotional financing offers
  • Low initial maintenance costs
  • Highest sticker price
  • Expensive repairs and insurance premiums
  • Depreciates an average of 30% in the first 2 years
Used
  • Lower purchase price
  • Cheaper insurance premiums
  • Slower depreciation
  • Possible mechanical problems
  • Outdated features
  • Higher auto loan interest rates
Lease
  • Lower monthly payments
  • Possible end-of-lease purchase option
  • Return for a new car after 2–4 years
  • Early termination fees
  • Mileage restrictions
  • Don’t own the vehicle

How to stay within your budget

From smooth-talking car salespeople to predatory auto lenders, many temptations can lead you to overspend on a vehicle. Follow these tips to stay within your budget:

  • Get pre-approved before you go to the dealership. It’s always best to get a pre-approved loan offer before visiting the dealership. Some dealerships offer promotional financing, but shopping around ahead of time allows you to compare your options. Beware of “Buy Here, Pay Here” dealerships, which charge higher rates.

  • Consider total ownership costs. Don’t forget to estimate the total cost of ownership, including insurance premiums and maintenance. Sites like Edmunds and Kelley Blue Book offer helpful tools.

  • Avoid long-term loans. Extending your auto loan term can significantly increase your total costs. Choose the shortest term you can comfortably afford.

  • Compare car insurance quotes. Make sure to compare car insurance quotes for your vehicle. If you find a company that offers cheap car insurance, you’ll have more wiggle room in your car budget.

Compare Car Insurance Quotes

See quotes from top insurers in minutes

Excellent
4.7 out of 5 based on 12,593 reviews
Secure. Free. Easy-to-use.
ProgressiveLiberty MutualAllstate

Common budget mistakes

It’s easy to get overwhelmed when buying a car. Avoid these common budgeting mistakes so you don’t miss a car payment:

  • Focusing only on the monthly payment: Dealerships are notorious for highlighting the affordability of a monthly payment while downplaying the total borrowing cost. It’s a good idea to get pre-approved for a loan in advance and use an auto loan calculator to understand the total cost of each offer.

  • Underestimating insurance: Car insurance premiums can be expensive, especially for new vehicles. The average full-coverage insurance premium is $173 per month, according to Insurify data. Make sure to compare quotes before buying a car.

  • Ignoring hidden costs: If you only budget for the vehicle’s purchase price, you likely won’t have enough money to cover the total cost. Make sure to ask about dealer fees, sales tax, registration fees, and other hidden costs.

Car affordability FAQs

Before you let that new car smell cloud your judgment, make sure to get all the facts. Here are answers to some of the most common questions car buyers ask about affordability.

  • What car can you afford based on your salary?

    Figuring out which car you can afford depends on more than your salary. You also need to factor in your monthly expenses and existing debt. A good rule of thumb is that you shouldn’t spend more than 20% of your gross monthly income on your total vehicle expenses, including car insurance.

  • How much should you spend on a car if you make $100,000?

    Some experts suggest spending no more than 10%–15% of your annual salary on a vehicle purchase. That means you should spend no more than $15,000 on a car if you make $100,000 per year. But you should build a budget based on your vehicle and household expenses to determine how much you can afford to spend.

  • Should you buy a new or used car?

    It depends. There are pros and cons to buying new and used cars. New cars are more expensive and depreciate rapidly, but they come with the latest safety features and advanced technology. Used cars are cheaper, but you may pay more for maintenance. If you decide to buy used, ask for the maintenance record and check for recalls first.

  • How much should your car payment be?

    It depends. If you’re buying a new car, your car payment shouldn’t exceed 15% of your monthly take-home pay. If buying used, your payment should be 10% or less of your take-home pay. Create your own car-buying budget to figure out how much you can afford to spend.

  • How much should you put down on a car?

    You should try to put down at least 20% when buying a car. This helps keep your financing costs low and your loan balance closer to your car’s value.

Sources

  1. Edmunds. "How Much Car Can I Afford? Edmunds Car Affordability Calculator."
  2. Environmental Protection Agency. "True Cost of Car Ownership."
  3. Federal Trade Commission. "Financing or Leasing a Car."
  4. Consumer Financial Protection Bureau. "How much can I afford to borrow for a car or auto loan?."
  5. Consumer Finance Protection Bureau. "What is a debt-to-income ratio?."
  6. Consumer Financial Protection Bureau. "How does a down payment affect my auto loan?."
  7. Kelley Blue Book. "How Much Is the Typical Car Down Payment?."
  8. Consumer Financial Protection Bureau. "What is Guaranteed Asset Protection (GAP) insurance?."
  9. Consumer Financial Protection Bureau. "What should I know before I shop for a car or auto loan?."
  10. Insurance Information Institute. "What determines the price of an auto insurance policy?."
  11. Insurance Information Institute. "How to save money on car insurance."
Lindsay Frankel
Written byLindsay FrankelInsurance Writer
Photo of an Insurify author
Lindsay FrankelInsurance Writer
  • 5+ years in auto insurance and personal finance writing

  • Featured in top personal finance publications

Lindsay is a widely published creator of auto insurance content. She also specializes in real estate, banking, credit cards, and other personal finance topics.

Featured in

media logomedia logomedia logomedia logo

Lindsay is a widely published creator of auto insurance content. She also specializes in real estate, banking, credit cards, and other personal finance topics.

Matthew Gross
Edited byMatthew GrossEditor
Matthew Gross
Matthew GrossEditor

Matthew Gross is an insurance editor at Insurify. He aspires to help readers make more informed decisions through well-crafted content. Matthew’s background in journalism and SEO taught him the value of keeping readers at the core of his work. Prior to Insurify, Matthew brought his user-centered approach to his work with global brands like Apple and Adobe. He holds a bachelor’s degree in Journalism from Illinois State University.

Mark Friedlander
Reviewed byMark FriedlanderSenior Director, Media Relations, Insurance Information Institute
Mark Friedlander
Mark FriedlanderSenior Director, Media Relations, Insurance Information Institute
  • Media relations director for Insurance Information Institute

  • 20+ years in insurance and communications

  • Impartial, independent expert

As Senior Director, Media Relations, for Insurance Information Institute, Mark serves as the non-profit’s national spokesperson, sharing information and education on a wide array of insurance issues.

Konstantin Halachev
Data reviewed byKonstantin HalachevVP of Engineering & Data Science
Headshot of Konstantin Halachev, VP of Engineering at Insurify
Konstantin HalachevVP of Engineering & Data Science
  • 7+ years experience in data analysis

  • Ph.D. in Computational Biology

Konstantin has led data teams across multiple industries, including insurance, travel, and biology. He’s led Insurify’s engineering team for more than three years.

Compare Car Insurance Quotes Instantly

Excellent
4.7 out of 5 based on 12,593 reviews
Secure. Free. Easy-to-use.
ProgressiveLiberty MutualAllstate