How Much Car Can You Afford? A Practical Guide

Rules of thumb for setting a car budget, how down payment and trade-in change what you can afford, and a worked comparison of a new vs. used car payment.

"How much car can I afford" really means "what total monthly payment fits my budget" — which depends on price, down payment, trade-in, interest rate, and loan term all together, not price alone.

A common budgeting rule of thumb

One widely used guideline caps total vehicle costs (payment, insurance, fuel, and maintenance combined) at around 15-20% of take-home pay, with the loan payment itself often targeted at 10% or less. It's a starting point, not a strict rule — your own budget, existing debt, and savings goals matter more than any single ratio.

New vs. used: a worked comparison

A $28,000 new car at 6.0% APR over 60 months: $541.32/month, with $4,479.11 total interest. A $20,000 used car at a higher 8.5% APR (used loans typically carry higher rates) over the same 60 months: $410.33/month, with $4,619.84 total interest — a lower monthly payment despite the higher rate, simply because the loan amount is smaller.

Why a bigger down payment helps more than it looks like

On a $25,000 vehicle at 6.5% APR over 60 months, a $2,000 down payment gives a $450.02 monthly payment and $4,001.28 total interest. A $5,000 down payment on the same vehicle drops that to $391.32/month and $3,479.38 total interest — a $3,000 larger down payment saves $522.90 in interest and about $59/month, since you're financing less principal for the entire loan term.

Plug your own price, down payment, trade-in, and rate into the Auto Loan Calculator to find a monthly payment that actually fits your budget.