How Much Car Can I Afford?

Quick Tips About Car Affordability

• Set a realistic budget by including all car-related costs; aim to keep total transportation expenses around 10% of your net income.
• Personal preferences are significant factors in determining how much to spend on a vehicle; some drivers choose base models because they leave more money for vacations or entertainment.
• Check your credit and choose loan terms wisely, understanding that shorter loans and higher credit scores save money on interest.

Before setting your sights on a new ride that’s out of reach, determine the answer to an essential question you should be asking: “How much car can I afford?”

How much to spend on your next vehicle depends on many factors, one of the foremost being price. The average transaction price for a new vehicle in today’s market is nearly $49,000. That is a considerable amount of money for most people, and staying within your financial means is crucial.

Keep reading as we outline the costs that make up your car payment, help you determine the amount you can spend each month, and show you how to calculate a price range for shopping within your budget.

• Affordability Calculator
• How Much Car Can You Afford?
• Determining How Much You Can Afford
• Pick a Target Purchase Price
• Quick Buying Checklist

Car Affordability Calculator

Use Autotrader’s car affordability and budgeting calculator before you begin shopping for a new or used car. The simple tool lets you quickly find your budget’s best vehicle price point. Similarly, you can enter some basic information to estimate the monthly payment for an auto loan.

Refer to our car payment guide for additional helpful information on budgeting for a new or used automobile.

More on Affordability Calculator

Several factors can affect a car payment. If you’re financing your automobile purchase with a loan, the price of the car you can afford depends on those collective puzzle pieces.

Using our Affordability Calculator tool, you can easily calculate the maximum car price that fits your preferred monthly payment. Enter some details about your current and future car, including:

• Monthly car payment budget
• Interest rate
• Length of loan
• Sales tax rate
• Down payment
• Trade-in value
• Amount owed on trade

Based on that information, the affordability calculator provides a price for you to use as a reference point when shopping for your next car.

How Much Car Can I Afford?

Calculating the car price range to meet the monthly payment you want is simple. Deciding the amount of that budget is another matter.

Buying a car is a significant financial decision, and the process can be both exciting and stressful. Even experienced car buyers need reminders to keep emotion out of the equation. It is crucial to your financial health that you purchase a vehicle you can comfortably afford, not just the car you want.

Your purchase requires more than just the car price you negotiate. Your loan and monthly payment may include other fees associated with buying a vehicle, such as:

• Taxes
• “Doc” fees and additional dealer fees
• Vehicle service or maintenance contract
• Extended warranty
• Other add-ons purchased at the time of delivery, such as all-weather floor mats or a roof rack

Remember the associated costs of owning an automobile over time, such as insurance, gas, and maintenance.

Determining How Much Car You Can Afford

Your personal preferences contribute to setting the budget for your new ride. Remember that just because a formula indicates you can afford a certain amount doesn’t mean you must spend that much.

Consider your priorities when deciding how much to spend on your next car. Some people have smaller budgets for vehicles because they choose to spend more on entertainment. Other people may buy expensive automobiles because they don’t have significant vacation expenses.

1. Calculate an Auto Budget You Can Afford

A car payment is just one item in your total monthly spending. Start with your monthly income after taxes. Then subtract each of your recurring expenses, which may include:

• Rent/mortgage
• Utilities
• Food
• Health care and insurance
• Credit card bills
• Child care expenses
• Savings contributions

Some personal finance experts recommend that your auto budget costs (loan payment, insurance, gas, maintenance, and repairs) comprise around 10% of your monthly net income. One common suggestion is a 20/4/10 rule of thumb to help determine your automotive budget:

• Put down 20% of the vehicle’s price.
• Finance the purchase for no more than four years.
• Keep transportation costs around 10% of your monthly net income.

Utilize the My Wallet feature from Autotrader and Kelley Blue Book to help set your budget with personalized pricing and monthly payment details. Look for the wallet icon in the top navigation and get started with My Wallet.

Longer Loan Terms

The 20/4/10 guideline is designed to save you money in the long run and reduce the risk of owing more money than the vehicle is worth. However, a 20% down payment and a 48-month-long loan are out of reach for many car shoppers.

The cost of vehicles has pushed many consumers to choose broader loan terms. The credit experts at Experian report that about 70% of used car loans in the first quarter of 2025 had 72-month terms. The average loan length for new cars these days is about 68 months. The average monthly payment for new car loans is $745.

• Longer loan terms mean lower monthly payments. While easier on your wallet each month, prolonged terms result in paying more interest over time and increase the risk of being underwater on the loan.
• Some manufacturer powertrain warranties may expire before those 72- or 84-month loans are paid off in six or seven years.
• Shorter loans have higher monthly payments, but save you money on interest and allow you to build equity in the car.

2. Check Your Credit Score

Knowing where your credit stands before applying for a loan could save you a lot of money in the long run. A loan’s interest rate, or annual percentage rate (APR), changes the amount of your car payment.

Borrowers with higher credit scores generally qualify for lower interest rates on loans, reducing the overall cost of buying a vehicle.

The major credit bureaus — Experian, Equifax, and TransUnion — gather information on your credit payment history, amounts owed, length of credit history, new credit, and credit mix. A credit score, ranging from 300 to 850, is assigned using complex calculations to indicate whether someone is more or less likely to miss a payment.

If you have a lower credit score, qualifying for a lower interest rate can be challenging. However, you might obtain a better interest rate by making a larger down payment. More money down reduces the loan amount and, in turn, your monthly interest charges.

Consider Multiple Financing Options

Shop around for competitive loan interest rates. Obtain preapproval from several lenders, including credit unions, before visiting a dealership to improve your negotiation position. Negotiate the out-the-door price before discussing how you’ll pay for the automobile.

RELATED: How to Freeze Your Credit

3. Calculate Fuel Usage and Insurance Costs

In addition to a monthly car payment, your monthly automotive budget must include the cost of filling up the gas tank and paying for insurance. These costs can fluctuate depending on where you live, your driving habits, your chosen vehicle, and the type of gas it requires.

For fuel expenses, refer to the EPA’s FuelEconomy.gov website. It has a detailed listing of fuel economy figures, annual fuel cost estimates, and other tools for new and used vehicles.

Contact your auto insurance company with information about the vehicle or vehicles you’re considering and obtain quotes. A newer car generally means higher insurance premiums for the owner.

Use Kelley Blue Book’s Cost to Own Calculator when researching automobiles to purchase. The cost is the total amount of vehicle-related expenses you will likely have during the first five years of owning a new car, including fuel and insurance, and vehicle depreciation.

MORE: Can You Buy a Car With a Credit Card in 2025?

4. Determine Your Extra Cash for Down Payment

Some auto dealers and lenders may offer zero-down-payment financing. A deal like this can be an enticing offer to many buyers. However, putting down some cash when you close the deal is better to help cover various fees and taxes.

Sometimes, making a larger down payment allows you to obtain a better interest rate. Any funds you can put into a down payment will reduce the amount you need to borrow.

Consider this example. A $41,000 vehicle might have an out-the-door price of $45,000, including taxes, registration, destination charges, and other fees. Making a $9,000 down payment leaves $36,000 to finance. A borrower with a good credit history may qualify for an auto loan with a 7% interest rate, which is the average rate in today’s market. Over a 60-month loan term, the total interest paid is $6,771. The monthly payment will be about $713.

Every additional $1,000 you can put down will save you $188 in interest and reduce the monthly payment by about $20.

Not long ago, 20% down payments were required when financing new automobiles (10% for used cars). Some advice suggests using that amount today, but many buyers have difficulty parting with that much money at once. Never deplete your savings account just to have a bigger down payment.

MORE: Buying a Car With Cash: Everything You Need to Know in 2025

5. Calculate a Car Loan Amount You Can Afford

After you have figured out the amount you can comfortably spend on a car and related expenses each month, you must determine how much you want to borrow. That figure is affected by several factors related to APR and the length of the loan.

• Credit score. Borrowers with higher credit scores generally qualify for lower interest rates because lenders see those customers as less risky.
• Loan terms. The number of months you have to repay the money affects your monthly payment. Shorter loan terms create a higher monthly payment. Longer loan lengths bring lower monthly car payments, which means you’ll pay more in interest over the life of the loan.
• New or used car. New car loans typically have more favorable interest rates than those available for used vehicles.
• Lease vs. buy. Leasing a new car is an attractive option for many shoppers. Lower monthly payments make lease offers appealing, but they come with mileage limits and no equity.
• MORE: Best Car Deals

Pick a Target Purchase Price

The total loan amount you can afford doesn’t always match the price of the car you can afford. The cash you put down, along with any allowance you get from trading in your old vehicle, determines whether you can get a higher-priced car or borrow less money.

You must factor in the additional costs that make up an automobile’s out-the-door price. Sales tax rates and other fees vary, but you can be sure that you won’t just be paying what’s shown on the window sticker. An easy way to estimate these extra expenses is to add 10% to the advertised price of the car.

• Sales tax: Often 5% to 10%, it may include state, county, and local taxes.
• Registration fees: Estimate these fees using your state’s Department of Motor Vehicles site.
• Documentation fee: Ranges from $80 to $400, depending on your state.

Now, you can get a realistic idea of the purchase price you should target.

Quick Buying Checklist

1. Calculate 10% of your monthly net income for transportation expenses.
2. Check credit and get preapproval from multiple lenders.
3. Research vehicles for your needs, pricing and fair values, and cost-to-own tools.
4. Plan 20% down for new, 10% for used, and include rebates and trade-ins for down payment.
5. Compare finance and lease offers, and watch the total cost and mileage caps.
6. Negotiate price before discussing payment at dealerships and avoid unnecessary extras.
7. Choose a 48-month loan if possible, and avoid 72- and 84-month loans.
8. Before signing, review your budget and purchase price, factoring in long-term ownership costs: car, fees, insurance, depreciation, maintenance, and fuel.

Editor’s Note: This article has been updated since its initial publication.