How Much Can I Afford To Spend On A Car?

Car Budgeting Tips for First-Time Buyers

• Learn how to figure out a car budget that works for you based on what you make and spend.
• Find out the real cost of owning a car, which includes things like keeping up with it, paying for insurance, and buying fuel.
• Use rules for making a budget, like the 20/4/10 rule, to help you decide what to buy.
• Think about things like drops in car value, taxes, getting your car registered, and fixing things that break.
• Use budget tools and check your credit to help you get ready for buying your first car.

Introduction

Starting out with your car can be exciting. However, it involves more than simply making the monthly payment. You need to think about all the costs before you make a choice. You will pay not just for loan payments but also for insurance and routine care. These things take money from your budget, whether you are getting a new car for the first time or just swapping your old one. By looking at all the costs at the start, you can see if owning a car works well with your spending limit.

The True Cost of Car Ownership

Buying a car is not just one big payment. You will also have to pay each month for things like fuel and insurance. You also need to think about keeping your car in excellent shape. The cost for all this can change. It depends on the kind of car you get and how much you use it.

The loss of value is another big thing to think about. A new car starts to lose its worth as soon as you drive it out of the lot. You can expect about a 20% drop in the first year and then about 15% each year after that. This drop in value can hurt your future money plans. But a used car loses value more slowly. This can be a beneficial choice for people who want to save money. Still, used cars might need more repairs, so always look at their service history before you decide.

Purchase Price Versus Ongoing Expenses

While the purchase price may attract your attention, it’s the ongoing costs that significantly impact long-term affordability. The sticker price frequently does not include the licensing fees, loan interest, and dealership add-ons.

Your insurance cost can change based on the car’s type, how old it is, and what safety features it has. If you pick a luxury car or sports car, you will pay a lot more for insurance. The costs associated with maintaining your car, such as oil changes, tire rotations, and repairs for broken parts, can increase significantly over the years. Every car, even the best ones, needs to be cared for often. Older cars, in particular, may sometimes experience unexpected issues.

If you plan for these hidden costs ahead of time, you can feel less stress about money. It can also help you have a better time owning your car.

Depreciation and Resale Value

A car’s value goes down as time goes on. This loss is called depreciation. Many people do not think about this cost, but it is important. A new car will lose a lot of value in the first year. In five years, most new cars lose about 50 to 60 percent of their value.

Used cars often hold on to their value better when you think about how much you pay for them. But the costs of keeping them running can be higher. Finding a car with a good track record of maintenance and proper service is wise. This will help you avoid having to deal with sudden repairs or costs. If you compare how a car loses value with how easy it is to sell again, you can make a better choice with your money.

Budget Factors That Affect Car Affordability

Your car budget needs to match your full money situation. You should review your income, examine your spending, and determine how much money remains after covering your essential expenses. Things you must pay for, like rent, utilities, and food, should come first. After you pay for these, you can see how much money you have left each month to spend on a car. This is the best way to make a smart choice about what you can spend.

Budgeting helps you see if what you buy matches your money goals. It also makes sure you do not put too much stress on your pay.

Your Monthly Income and Financial Commitments

Start by working out your monthly take-home pay. Most say to spend 20% of your monthly income on a car payment. For example, if you get $4,000 each month, your car payment should not go over $800.

However, you also have additional financial responsibilities. These can be things like housing, student loans, or paying for childcare. All of these can change how much extra money you have in your budget. Be sure to think about saving some money for life’s surprises and putting it aside to grow later. You need to look at all your money plans. This will help you pick a car payment that you can manage each month without too much stress.

Down payments and Interest rates.

It is often a good idea to pay at least 20% up front when you buy a car with a loan. This helps make your loan smaller. You also pay less each month. Over time, you save money on interest too.

Your credit score is crucial for the interest rate you get. A higher score can help you get a lower interest rate. This can make your loan cost less in the end. Even a small change in the interest rate can change how much you pay each month and the total you pay back.

Look at loan options from several lenders. Try to get a favorable interest rate. Make the biggest down payment that you can without any trouble.

Common Costs of Car Ownership

Beyond just buying a car, you have to pay for many other things again and again. These are fuel, insurance, the money spent on keeping your car running well, and fees to keep it registered. All these things add to the total cost of owning a car each year.

If you do not make a budget for these things, you might have an unexpected money problem. But if you prepare for these costs, your car can stay cheap after you buy it.

Insurance, Taxes, and Registration Fees

• Insurance: The money you pay can change based on your driving record, where you live, and the car you pick. It’s a beneficial idea to compare prices from places like Geico or State Farm to get the best deal.
• Taxes: You might have to pay sales tax or other charges, depending on the state you are in. This can make the overall cost go up a lot.
• Registration: You need to pay for registration each year to keep your car legal to drive. The amount you pay is not the same in every state.

You won’t be surprised if you prepare for these costs ahead of time. You will also be able to keep control of your budget.

Fuel, Maintenance, and Unexpected Repairs

Fuel is one of the most frequent costs associated with owning a car. Most drivers who go about 15,000 miles in a year will spend more than $2,000 on gas during that time. If you pick a car that uses less gas, you can save a lot of money.

Doing things like regular oil changes, changing filters, and rotating tires helps your car run well. The money you need to set aside for this each year is usually between $200 and $500. Sometimes, an older car may require unexpected repairs, which can be quite expensive. Therefore, saving some money for these types of repairs is advisable.

Keeping up with the care of your home and saving money for emergencies can help stop surprise costs from hurting your money situation.

Budget Planning Tips for First-Time Car Buyers

New buyers need to start by knowing where they stand with money. Budgeting tools, credit monitoring apps, and online calculators are beneficial to use. These tools help you see what you can spend and what fits your wallet.

Know your current income, monthly expenses, and future financial goals. This base helps make sure you do not pick a car that is too much for you.

What You Will Need to Get Started

• Government-issued ID
• Proof of income, like pay stubs or tax returns
• Proof of residence
• Credit report

These documents help with loan approvals and make the car-buying process easier. If you know your credit score beforehand, you can get an idea of the terms for your loan. Budgeting tools like spreadsheets or apps help you see what you can afford and keep track of car costs in a useful way.

Instructions to Calculate Car Budget

Step 1: Look at your monthly take-home pay

This is the money you get after taxes and other costs are taken out. Knowing what you take home each month helps you set the most you should spend on your car payment.

Step 2: Add up what you already spend and what you want to save

Look at things like rent, groceries, debt payments, and the goals you want for your money. Deduct these from the portion of your pay that you retain. This shows how much you can spend and still feel good about it.

Step 3: Apply the 20/4/10 rule

• You should make a 20% down payment.
• The financing period should be four years or less.
• All car costs, like your loan, insurance, and fuel, should not go over 10% of your take-home pay.

Following this rule helps you stay within your budget and keep things affordable.

Summary of Planning a Car Budget

Setting a budget for your first car is an important step when you want to buy your own. Start by looking at your income, what you spend, and your savings goals. This helps you know what you can spend on the car while making sure you feel good about your choice. Try using tools like the 20/4/10 rule. It helps you not spend too much and keeps you from having any money problems. If you get ready in the right way, getting your first car can work well and feel rewarding.

Frequently Asked Questions

How much of my income should go toward a car payment?

It is good to keep your car payment at 15–20% or less of your monthly income after taxes. This way, you will still have money for savings and other things you need.

Is it better to buy a new or used car when you are thinking about your budget?

A new car will be more reliable and usually comes with some type of warranty. But a new car loses value fast. A used car will not cost as much and does not lose value as quickly. But you may need to pay more to keep it running well. Pick a car based on how much you want to spend, what you need, and what your money goals are.

What other costs should I think about before I buy a car?

You need to include the cost for insurance, gas, taxes, registration, loan interest, and taking care of the car. You also have to think about any repairs you might not see coming. These costs come up again and again. They can make the total price of the car go up by a lot more than just what you pay to buy it.

How can I lower the overall cost of car ownership?

Drive in a smart way. Pick a car that saves gas and that you can trust. Check different insurance rates so you get the best deal. Do regular checkups on your car. Don’t get upgrades you do not need or loans that go on for a long time. This will help keep your total costs down.

Written by David Chu Updated October 14, 2025 by Albert Fang