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How Much Car Can I Afford?

Learn how a car payment works and use our helpful car-buying calculators to decide on payments that will work with your financial plans.

Lora Shinn
Contributor
Published Nov 25, 2024 in: Spending & Shopping

Read time: 13 minutes

Your next car should be something that moves you (literally and figuratively) and doesn't stress your budget.

One often-used guideline is that you can afford to buy a car as long as your monthly auto loan payment is 10% or less of your monthly take-home pay. But there are more factors to consider when adding up how a new vehicle purchase might fit into your budget.

"Take your time and do your research," said Stacey Black, BECU lead financial educator. "Try to do most of the work involved in purchasing a car before you even step foot in a dealership."

Takeaways About How Much Car You Can Afford

Don't spend more than 10% of your monthly take-home pay on an auto loan payment and 20% for total car costs, including gas, insurance and repairs.
Your affordability calculations should include the one-time cost of your vehicle down payment and fees, and ongoing costs such as monthly loan payments, insurance and fuel.
For a lower monthly payment, review the following: Compare car prices, put more money down, offer a trade-in vehicle and keep the total purchase price low. You could also consider a longer loan term, but this could increase your APR.
Buying a car can be one of the more expensive financial decisions you'll make, so buy a car you can afford and that doesn't hamper other financial goals.
On average, it costs $0.72 per mile to operate and maintain a new vehicle.

Is Now a Good Time to Buy a Car?

Good news for auto shoppers: After several years of increases, average national auto loan rates and vehicle prices are falling from 2023 peaks.

The average price of used cars is falling compared with 2022 and 2023, according to research from car-data company iSeecars. Three popular used models (Chevrolet Malibu, Toyota Corolla, and Hyundai Elantra) are now available for under $20,000, compared with 2023, when just the Hyundai Elantra was available at that price.

For the past several years, new cars have sold for above MSRP, peaking in 2022 before stabilizing, according to car site Kelley Blue Book. But shoppers may find car dealers more willing to make deals and offer incentives to move cars off the lot in late 2024, now that the post-pandemic inventory supply has normalized — and inventory is the top driver of new-car costs.

Cox Automotive research indicates that the typical new-car loan annual percentage rate was running an average of 9.53% in September 2024. For used vehicles, APR was at 13.91% in September 2024. The average new-vehicle price increased by 0.8% for September 2024, to an average of $48,397. However, shoppers' income increases and dealership incentives have increased overall affordability in the past year or so.

Calculating Your Next Car Budget

Use BECU's calculators to enter how much you can afford in monthly payments or in total, based on loan terms. Your car's monthly payment results from your auto purchase price (including taxes and license fees), down payment, interest rate and term.

Calculating a Car Loan Amount

The "How Much Vehicle Can I Afford" calculator allows you to input whether you want a new or used vehicle and your best guess at a monthly payment, down payment, trade-in value, loan term and interest rate. The calculator then shares the purchase price.

Use this calculator if: You already know how much you can afford in monthly payments.

"Determine what you can comfortably afford based on your specific situation and future goals," Black said.

Calculate if your car loan payment fits within your monthly budget, considering any other debt strategies you're using, your annual salary, and whether you're trying to save for another goal, such as buying a home.

Calculating a Monthly Payment

The "How Much Will My Payments Be" calculator includes the vehicle purchase price (including taxes and license fees), your down payment, trade-in value, amount owed on trade-in, loan term and interest rate.

Use this calculator if: You want to see how a car's purchase price will look as a monthly payment.

"When applying for an auto loan, remember that you might be approved for more than you can comfortably afford," Black said. "Review your budget before applying and avoid the temptation to borrow more than you need."

Your Monthly Car Payment

One general guideline Black likes to follow is to keep your monthly car payment under 10% of your take-home pay and your total car expenses (including gas, insurance and repairs) under 20%.

The average 2024 new-car loan payment was $733, according to Edmunds data, a slight decrease from earlier in the year. The average used-car loan payment was $569.

If your take-home pay is $5,000 per month, 10% of this amount is $500 per month.

Here are some more examples:

	Monthly Take Home Pay	Monthly Max Car Payment
	$3,000	$300
	$5,000	$500
	$7,000	$700
	$10,000	$1,000

You can enter your monthly car payment — or another desired loan payment — and the amount of your down payment into the "How Much Vehicle Can I Afford" calculator.

Example:

If you calculate your budget for a car payment as $500 a month and have saved $5,000 for a down payment, you can buy a car for $26,191 if your loan has an interest rate of 6.24% APR over 48 months.

Beyond the Sticker Price

Your car payment isn't the only car-ownership cost. Black recommended that you ensure you can commit 20% of your monthly income to all car expenses, including the monthly cost to insure, fuel and care for your car.

Remember: You won't be able to anticipate when all car costs will pop up. For example, you know about your upcoming car insurance bill, but your mechanic tells you it's time for new tires at your next inspection. Or you get into a car accident that requires you to pay your deductible. Save monthly to cover these reliably surprising future auto expenses.

Consider the factors below to understand the cost of owning a car. Some cars cost more than others to take home, maintain and operate.

One-Time Costs

Many people only consider the up-front, out-the-door costs of buying a car — or simply the advertised price. However, whether you're paying in cash or getting a loan, you will likely encounter the following costs.

Auto Purchase Costs

As of September 2024, the average new-car price in the U.S. was $48,397, while the average used-car price was $25,361, according to Kelley Blue Book. With a luxury vehicle or larger SUV or truck, you may pay more from down payment to sales tax — not to mention fuel and insurance costs. In all, the out-the-door auto purchase price normally includes:

The dealer's price
Features you add, such as alarm systems or window tinting
Services you add, like extended warranty or service contract
Sales tax
Other fees (see below)

You can negotiate some aspects (such as the dealer's price and features) while others you cannot, such as taxes and title. If you're paying out of pocket, consider that unlike many other assets (like a house), cars decrease or depreciate in value. According to Carfax, you can expect your new vehicle to depreciate 20% in the first year and 15% in the following years — after five years, it's worth just 50% of the original value.

If an auto loan's term runs for too many years, you could end up upside down on your vehicle loan, where you owe more than the car is worth.

Down Payment Costs

If you're getting a loan, the down payment is an amount you put toward the car's purchase cost. You might write a check for this amount or use the value of your older vehicle if you hope to trade it in.

For new cars, the average down payment is $6,823, according to 2024 Edmunds data. For older cars, the average down payment is $4,106. If you make a down payment, you likely would finance the rest with your auto loan.

"A larger down payment can reduce your loan amount, lower monthly payments and get you a lower interest rate," Black said. "But keep your other saving and spending goals in mind, too. Be careful not to overspend on a car and wipe out your emergency savings."

Estimate the dollar value of your current car before deciding whether to trade it in at the dealer or sell it yourself and use the money for a down payment on another vehicle. You can use a site like Kelley Blue Book to determine your vehicle's value.

If you still owe anything on your current auto loan, you must pay it off as part of the trade-in process. The amount owed will be deducted from your trade-in value.

Paperwork and Fee Costs

Some fees you'll only pay once at the dealership. Others you'll pay on an annual basis. Common vehicle fees include:

Filing fee
License and registration fees
Service fee
Tab renewals
Plate fees

Some fees you can adjust. For example, you can choose whether to transfer your existing license plate, pay more to issue a new one or get a personalized one. You won't have much say in others, like your annual tab renewal. The cost for vehicle tabs varies depending on the vehicle, plate and location.

To estimate the cost of your new car purchase, use your state's online calculator to total your fees or call a state vehicle licensing office.

You may be able to deduct some motor vehicle taxes from your federal taxes, but check with a professional tax advisor before doing so.

Electric Vehicle Costs

Your auto research might lead you toward an electric vehicle, or EV, now making up about 10% of all auto sales. Buying an EV will incur the additional cost of installing an electric charger in your home.

Depending on your charger type and current electrical panel, this install can run up to $2,000 or more. Get an electrician's bid in advance and do your research before buying to consider all the costs.

Ongoing Vehicle Costs

It's often easy to overlook the annual cost of operating and maintaining a car, truck or SUV. A 2022 NHTSA report notes that driving a new vehicle 15,000 miles per year would cost $0.72 per mile to operate and maintain. Prices are likely higher now, based on the inflation figures below.

Auto Loan Interest Rate and Term

"A lower interest rate and shorter loan term can save you money in the long run," Black said.

In 2024, the average new car amount financed was $40,356, and the used car amount was $29,665, according to Edmunds. In general, lower interest rates and better auto loans go to:

New car loans
Borrowers with high credit scores or good credit history
Shorter loan repayment terms
Less existing debt

Your loan term is how much time you have to pay back the loan. This is usually 36 to 84 months or roughly three to seven years. The average loan term is between 65 and 70 months, according to the CFPB. Interest rates generally increase at 60, 72 and 84 months and for vehicles older than two years.

"Use online payment calculators to explore different scenarios," Black suggested.

Tip: Review your credit history in your credit report and consider how a new car payment may change your credit score or compete with other credit needs.

Insurance Costs

"Insurance premiums can vary significantly based on the car's make, model and safety features," Black said.

Call your insurance company to compare auto insurance premium quotes for different cars you're considering.

If you take out an auto loan, you'll be required by the financial institution to carry more than the minimum liability coverage. You'll also need to have comprehensive and collision coverage to cover any damage to the car.

Transportation-related insurance prices have risen dramatically in the past few years.

"You don't want to purchase a vehicle only to find out you can't afford the insurance," Black said.

Also remember that in some states, including Washington, your credit score influences your auto insurance costs. This is because there's a documented relationship between a lower credit score and being more likely to file a claim. Improving your credit score could earn you lower insurance rates in the future.

Fuel Costs

"A more fuel-efficient car can save you money on gas over time," Black said.

The site fueleconomy.gov allows you to compare the annual fuel cost for different makes, models, years and other options. It also features top picks for the most efficient cars, SUVs, trucks and minivans. The website shows how much you'll save in fuel costs per vehicle and the cost to fill the tank.

Electric Vehicle Operating Costs

With an electric vehicle, you'll save money by avoiding the gas pump. Research by publication Autoweek found that while electric vehicles cost more than gas-powered vehicles, EVs can cost less to operate and maintain over time — no more oil changes. However, for the first few years, the difference isn't significant. If you're planning to buy and own an EV for more than a few years, savings are likely to accrue.

The U.S. Department of Energy's Vehicle Cost Calculator allows you to compare annual operating costs for a wide variety of gas and alternative-fueled vehicles for pricing based on your driving distances and state.

Maintenance and Repair Costs

Research the car's reliability and the cost of parts and repairs, Black said. Some vehicles are more expensive to maintain than others, and maintenance and repair costs have increased by about one-third since 2020, according to 2024 Federal Reserve statistics.

J.D. Power and Consumer Reports survey consumers about their experiences with various brands, models and vehicle types, and the information is released in annual reports. Review these reports to ensure you're not buying a car plagued by expensive or frequent repairs.

In 2024, Consumer Reports started releasing a list of the best used cars based on reliability surveys of five- to 10-year-old models.

Saving Money on a Vehicle Purchase

If the estimated monthly car payment amount is too high, consider these strategies to reduce it:

Look for a lower price: A less expensive vehicle will have a lower loan amount.
Save for a larger down payment: A smaller loan amount will lower your monthly payment and could lower your APR.
Trade in or sell your current car first. Your net trade-in will give you more money for a larger down payment.
Look for incentives and cash rebates: Manufacturer offers typically include cash rebates or incentives for special vehicle models. Tax credits or other incentives may help decrease the cost of buying an EV.
Get a lower interest rate: Shop around for the best APR and improve your credit score to qualify for a better rate. Remember to keep your shopping within 14-45 days (according to the Consumer Financial Protection Bureau) which are consolidated as one inquiry on your credit report, instead of multiple inquiries that can lower your credit score.
Extend the term: A longer auto loan term will lower your monthly payment, although you'll be paying for a longer time, may have a higher interest rate and will pay more for the vehicle over the long run.

Big Picture: How Much Car Can I Afford?

During the car-buying process, look beyond customer reviews and compare what you can get for your trade-in and the interest rate, expressed as APR.

Use our car affordability calculator to play with down payment, APR and loan term. Keep the loan term as short as possible, as long as the monthly payment works with your budget and goals. Otherwise, you'll pay more interest overall.