How much should you spend on a car? Probably not as much as you might think.
You can spend between 10 and 50 percent of your gross annual income on a car. That’s a big range, we know, so if we had to set a rule, it would be this:
Spend no more than 35 percent of your pre-tax annual income on a car.
Lower is better, but we recognize personal finance is personal. You might spend more only if you can securely pay cash for your vehicle and the kind of car you drive is important to you. You can explore how much car you can accord in our car affordability calculator below.
You can limit how much money you spend on your car by:
Saving up and paying cash
If you do both of these things, you’ll save thousands of dollars compared to financing or leasing new vehicle.
That said, sometimes you need transportation before you have cash saved to buy a car. So there are some additional rules to consider when you get an auto loan.
Use our car affordability calculator to find out your maximum payment
Do you have a car to trade-in? How’s your credit? Having you been socking away money for a new car for years? These factors will affect how much of the car you’ll have to finance and how much you’ll have to pay in interest.
Use our car affordability calculator to see how your down payment, trade-in, and auto loan interest rates and terms affect the amount of car you can afford.