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Financial experts recommend spending no more than 10% of your monthly take-home pay on your car payment and no more than 15% to 20% on total car costs such as gas, insurance and maintenance as well as the payment.
If that leaves you feeling you can afford only a beat-up jalopy, don’t despair. You can gain flexibility with your car payment using a balanced budget approach. Here’s how it works.
Before you hit the dealership or start car shopping online, take time to determine the maximum car payment for your budget.
Set your car payment budget
NerdWallet recommends using the 50/30/20 rule when setting your overall budget. To do this, divide your take-home pay into three general spending categories:
50% for needs such as housing, food and transportation — which, in this case, is your monthly car payment and related auto expenses.
30% for wants such as entertainment, travel and other nonessential items.
20% for savings, paying off credit cards and meeting long-range financial goals.
A monthly auto loan payment typically falls into the “needs” category. If you’re buying a car, it’s most likely essential for getting to a job or taking the kids to school.
However, the balanced budget approach can provide flexibility. For example, if you split housing costs with a roommate, you could have a higher percentage available for a car payment in the “needs” category. Or, if you want a more expensive car, you could consider part of your monthly payment as spending in the “wants” category.
The key is keeping the budget balanced overall. If you plan to spend less in some areas, then you may choose to spend more than 10% of your take-home pay on a car payment.
🤓Nerdy Tip
When you know how much your car payment should be, you can back into what you can afford to spend on a car. NerdWallet’s car affordability calculator lets you start with a monthly car payment to estimate a realistic car price.
How do lenders determine a car payment?
Several factors contribute to the amount of your car payment.
Having a maximum car payment amount in mind, and sticking to it, can help when negotiating at a dealership. But beware if a dealer encourages you to go with a longer loan term to reduce your monthly car payment. Taking out a longer loan can result in paying considerably more in interest over the life of the loan. NerdWallet typically recommends loans of no more than 36 months for used cars and 60 months for new cars, though that may be more difficult in today’s market.
» MORE: NerdWallet’s Guide to Buying a Car
If you focus only on the monthly car payment and ignore total financing costs, you could waste a lot of money. For example, look at how two different loans can result in the same car payment.
The interest rate on your auto loan also affects your car payment. The rate you pay to borrow money depends on your credit score and other factors, and lower credit scores generally result in higher rates. But rates vary from lender to lender, so it’s smart to shop around to find the most competitive rate on your auto loan. It’s especially important if you need a bad credit auto loan because these loans tend to have the highest rates.
You can use NerdWallet’s auto loan calculator to compare various rates and terms.
Find a car loan
When a car payment doesn't fit your budget
If you’ve rearranged your budget, shopped loans and still can’t find a car payment you can afford, you can try a few other options.
Reduce the amount you need to borrow. The less you borrow, the lower your car payment will be. Consider buying less car or saving enough to make a larger down payment. Also, get the best price for any vehicle trade-in by researching online pricing guides like Kelley Blue Book and Edmunds.
Delay buying a car. If you can put off buying a car, you may be in a better place to get a car payment you can afford. In today's market of inflated car prices and payments, the average monthly new-car payment has surpassed $700, according to the vehicle affordability index provided by analytics companies Cox Automotive and Moody’s Analytics. Some car buyers are delaying their purchase, with the hope that car prices — and payments — will eventually fall.
Refinance down the road. If you have no choice but to buy a car with a high monthly payment, you may be able to refinance your car. In particular, if you have bad credit, making six to 12 months of on-time payments on your loan may help you to refinance to a lower rate and monthly payment later.
FAQs
The average monthly car payment is $738 for new cars and $532 for used. Several factors determine your payment. Shannon Bradley is a NerdWallet authority on auto loans. Before joining NerdWallet in 2020, Shannon spent 30-plus years as a writer, content manager and marketer in the financial services industry.
Is $600 a month too much for a car? ›
How much should you spend on a car? Whether you're taking out an auto loan or a personal loan to pay for your car, it's a good idea to limit your car payments to between 10% and 15% of your take-home pay. If you take home $4,000 per month, you'd want your car payment to be no more than $400 to $600.
Is $500 a month a high car payment? ›
According to Experian's third-quarter automotive finance report, drivers are spending over $700 and $500 each month for new and used vehicles, respectively. Insurance costs an average of $2,014 per year, according to Bankrate data.
What is a reasonable monthly car payment? ›
How much car can I afford based on salary? 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%.
What car can I afford with a 40k salary? ›
on the price of a car. is not to exceed 35% of your gross income. That means if you make $40,000 a year, the cars price should not exceed $14,000. If you make $80,000, the cars price should be below $28,000. And at 150 k salary, that means your max car price should be 50 2500.
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.
Is $1,000 a month for a car a lot? ›
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 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.
Is $800 a month a lot for a car payment? ›
Experts say your total car expenses, including monthly payments, insurance, gas and maintenance, should be about 20 percent of your take-home monthly pay. For non-math wizards, like me – Let's say your monthly paycheck is $4,000. Then a safe estimate for car expenses is $800 per month.
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.
It may be hard to believe, but it is possible to lease a car for under $100 a month. You may have to fork over a ton of cash upfront, but there are options for those looking for a brag-worthy lease deal with an extremely low payment.
Is $1,000 car payment bad? ›
But according to Edmunds, there's another reason why $1,000 monthly payments are becoming more common: Some buyers are taking out loans with shorter-than-normal financing terms to score a better financing deal, which means higher monthly payments. Endurance offers extended protection for your vehicle.
What is the average American car payment? ›
Average monthly car payments for new, new leased and used vehicles jump year over year. The average car payment for a new vehicle is a record $738 monthly, according to fourth-quarter 2023 data from Experian — up 2.5% year over year.
What is the 20 4 10 rule? ›
20% down — be able to pay 20% or more of the total purchase price up front. 4-year loan — be able to pay off the balance in 48 months or fewer. 10% of your income — your total monthly auto costs (including insurance, gas, maintenance, and car payments) should be 10% or less of your monthly income.
What is the rule of thumb for car payments? ›
Financial experts recommend spending no more than 10% of your monthly take-home pay on your car payment and no more than 15% to 20% on total car costs such as gas, insurance and maintenance as well as the payment.
How much is the average person's car payment? ›
The average monthly car payment for new cars is $726. The average monthly car payment for used cars is $533. 39.20 percent of vehicles financed in the third quarter of 2023 were new vehicles. 60.80 percent of vehicles financed in the third quarter of 2023 were used vehicles.
What credit score does NerdWallet use? ›
How does NerdWallet get my free credit report and score? NerdWallet partners with TransUnion® to provide your TransUnion® credit report. Using the data in your credit report, it also provides your VantageScore® 3.0 credit score. Your score and credit report information are updated weekly.
What would a $30,000 car payment be? ›
A $30,000 auto loan balance with an average interest rate of 5.0% paid over a 6 year term will have a monthly payment of $483. In total, the loan will cost $34,787 with $4,787 in interest.
What is the average payment on a $60000 car? ›
The Total Loan Amount
For example, if you're buying a $60,000 luxury car at 3% APR with no money down and paying it off over five years, you'll be responsible for paying about $1,078 per month. But if you're buying a $30,000 car at the same APR with a five-year loan term, you'll only pay about $539 per month.
