How Much Car Can You Afford? A Simple Way to Set Your Used Car Budget

How much car can you afford? A good starting point is the car whose total monthly cost, including the loan, insurance, fuel and upkeep, fits comfortably in your budget without needing a long loan to get there. Work out that monthly number first, then shop for a price that fits it, not the other way around.

What is the 20/4/10 rule for buying a car?

The 20/4/10 rule is a common guideline, not a law. It suggests:

• 20% down, to reduce what you borrow and the interest you pay.
• 4 years (48 months) as the longest loan term.
• 10% of your gross monthly income as the cap for your total car costs.

Many buyers can't hit all three, and that's fine. Treat it as a check. If you're far outside it, take a second look at the plan.

What costs should you count besides the car payment?

The payment is only part of owning a car. Add these before you decide on a number:

• Insurance. Get a quote on the specific car you're considering, since rates vary by model.
• Fuel or charging.
• Routine maintenance, tires and the occasional repair, especially on an older vehicle.
• Registration, taxes and fees at purchase.

How do you work out your monthly budget?

Start with what you can spend on the car in total each month. Subtract insurance, fuel and a set-aside for maintenance. What's left is the most you should put toward the loan payment. A loan calculator can then turn that payment into a price range once you know the term and rate.

Why does the loan length matter so much?

A longer loan lowers the monthly payment but raises the total interest and keeps you owing more than the car is worth for longer. We cover this in Is a 72-Month Car Loan a Good Idea? If a car only fits your budget at the longest term, it's probably priced above your range.

How much should you put down?

More down means less to finance. If 20% isn't realistic, put down what you can without draining your emergency savings. See How Much Down Payment Do You Need for a Used Car? for how this works.

What should you do once you have your number?

• Check your options with a lender or get pre-qualified, so you know your real rate. Our page on used car financing in Utah explains how it works.
• Ask for the out-the-door price, not just the sticker price, so fees don't surprise you.
• Browse cars that fall under your total budget in our used car inventory.

FAQ

How much of my income should go to a car?

The 20/4/10 guideline caps total car costs at about 10% of gross monthly income. Your own situation may call for less.

Is the monthly payment the right number to focus on?

It's one input. Watch the total price, the loan term and the interest rate too, because a low payment can hide an expensive loan.

Should I budget for repairs on a used car?

Yes. Set aside a small amount each month for maintenance and repairs, since older cars need more of both.

Can I afford more if I put more down?

A bigger down payment lowers your loan and payment, but it shouldn't push you to a more expensive car than your monthly budget supports.