Drivers' average car payments top $730 and $520 for new and used vehicles, respectively, according to Experian. For many Americans, their vehicle payment is the second biggest hit to their wallets each month after housing costs.
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.
It depends on how much income you have after your bills and expenses. But as a rule of thumb, your car payment should not exceed 15% of your post-tax monthly pay. For example, if after taxes, you make the U.S. median income of $37,773, you could shop for a car that costs up to $472 per month.
NerdWallet recommends spending no more than 10% of your take-home pay on your monthly auto loan payment. So if your after-tax pay each month is $3,000, you could afford a $300 car payment. Check if you can really afford the payment by depositing that amount into a savings account for a few months.
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.
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.
Example: A six year fixed-rate loan for a $25,000 new car, with 20% down, requires a $20,000 loan. Based on a simple interest rate of 3.4% and a loan fee of $200, this loan would have 72 monthly payments of $310.54 each and an annual percentage rate (APR) of 3.74%.
Because it's recommended you spend no more than 10% to 15% of your monthly after-tax income on your car payment, your monthly payment will significantly influence the kind of car you can afford. If your monthly take-home pay is $3,500, then that means that your car payment shouldn't exceed $350 to $525.
According to experts, a car payment is too high if the car payment is more than 30% of your total income. Remember, the car payment isn't your only car expense! Make sure to consider fuel and maintenance expenses. Make sure your car payment does not exceed 15%-20% of your total income.
If buyers don't have a downpayment or a trade vehicle, then the best way to get to a $300 car payment is to shop for a vehicle around $15,000. A $15,000 car has a monthly payment of $300 for 5 years at a 7.5% interest rate.
Take your net takehome pay and deduct all of those expenses. You should also be saving-investing at least 10%, deduct that too and that's how much you need to make to afford a $700 per month car payment. Do not overbuy or overcommit.
A $35000 car is $700 per month at 7.42% APR for 5 Years.
The average car payment for new vehicles hit a record high of $738 a month in the fourth quarter of 2023, according to an analysis from LendingTree. If that's too rich for your blood, there are plenty of better ways to spend that money and still get around.
The average monthly car payment is $737 for new cars and $520 for used. Several factors determine your payment.
It is recommended that you spend 30% of your monthly income on rent at maximum, and to consider all the factors involved in your budget, including additional rental costs like renters insurance or your initial security deposit.
A person making $60,000 per year can afford about a $40,000 car based on calculating 15% of their monthly take-home pay and a 20% down payment on the car of $7,900. However, every person's finances are different and you might find that a car payment of approximately $600 per month is not affordable for you.
Payment Amount
For example, for a car price of $20,000, a down payment of $4,000, a loan amount of $16,000, a loan term of 48 months, an annual interest rate of 5%, and a start-of-period payment method, your payment amount would be $366.94. You would be paying this amount each month for your auto loan.
Start With Your Gross Income
To get an idea of how much car you can afford, a good rule of thumb is to pay no more than 35% of your annual pre-tax income. So, if you make $50,000 before taxes per year, your car purchase price should not exceed $17,500.
It's good practice to make a down payment of at least 20% on a new car (10% for used). A larger down payment can also help you nab a better interest rate. But how much a down payment should be for a car isn't black and white. If you can't afford 10% or 20%, the best down payment is the one you can afford.