How much car can I afford to buyHow much car can I afford? That’s a question all future car owners should be asking. Buying a car is a big financial decision that should not be taken lightly.

While there are many schools of thought on how much of your monthly or yearly budget should go into buying a car, one thing we can say is that how much you can afford will probably be less than you think.

There are no perfect formulas. Although, you need to make sure that you spend what you can afford, not what you wish you could afford.

New, flashy vehicles are much more attractive but carry a much higher price tag than used cars. Then again, used cars will most likely, at some point, demand you spend some money on maintenance.

Which road you take is a personal decision and will depend on your financial situation. We can’t make the choice for you, but we can help you make an informed decision.

So, here are some facts and information you need to take into account before buying a car.

How can I calculate how much car I can afford?

First of all, you need to have a clear idea of what your car buying budget is. Before you even start thinking about car models, you need to know how much money you can really spend on a car.

So, take a few minutes—or hours—to break down your monthly expenses. How much do you take home at the end of the day? What is your monthly income?

Once you know that, start subtracting what you spend every month. Deduct your bills, child-related expenses, what you spend on entertainment, day-to-day activities, and savings.

Once that’s done, the number you are left with is how much you can afford to spend on your car. Is that what you should be spending? That’s for you to decide, but we recommend having some leeway in case of emergencies or unexpected job-loss.

Also, take into consideration that your car budget should include all car related expenses, such as insurance and fuel costs, along with your monthly payments.

Based on my salary, how much car can I afford?

Besides your salary, there are some other factors to take into consideration for how much of the vehicle you would have to finance and the interest you will pay.

Your credit, having a car to trade-in, and how much you have saved for a down-payment are all things that will affect the financing of your car purchase.

There are many online calculators that consider all of these aspects and give you a number based on your earnings.

However, before you go off to do the math, there is some advice we can give you on how to buy smart within your price range.

After the down payment (which should not be less than 20%—we’ll talk about this in detail later), your total payment for the car should not be more than 10% of your pre-tax income.

We know this can look like a small budget, but consider this: not paying more than 10% means that you have some extra wiggle room, and your car will not eat up all of your money. Should you have unexpected expenses, you will still be able to afford your monthly payments without creating even more debt.

Of course, only you know your real financial situation, but we strongly recommend not over extending yourself too much.

How much down payment for a car can I afford?

Once again, the exact number will depend on your income and how much you were able to save before making the purchase.

That said, most experts recommend making a down payment of no less than 20% of the price of the car. Why? Mainly because cars lose their value quickly, beginning the minute you make your purchase.

Cars lose 19% of their value by the end of the first year after you drive it out of the dealership. So, if you made a down payment that was less than 20%, by the end of that first year, you end up owing more that the car is worth.

So, we recommend putting down at least 20% of the value of the car as a down payment. Hopefully, you will be able to afford even more and thus take on a lesser loan for your car. However, we know that this would be an ideal situation.

Only you can truly evaluate how much is realistically possible for you to afford as a down payment. Still, you might think strongly about going for a used car if your budget is a little tighter.

How much car can I afford for $300 a month?

Like with buying a house, there are many influencing factors when it comes to the price of a vehicle. Whether you are buying new or used is one of the most important decisions that will influence the price.

Another important variable to consider is location. Not only will the prices of the vehicle vary but the cost of fuel will also fluctuate according to where you live too.

Insurance costs will also vary depending on whether you buy a new or a used car: the insurance on new cars is usually higher than the insurance cost of older and used cars.

Remember that what you decide to spend on your financing on a monthly basis should take into consideration all of the vehicle related costs, not only the payment for the car itself.

How long should I finance a car?

Once again, this will depend on your particular circumstances. If you are not able to make a down payment for at least 20% of the cost of the vehicle, you will need to finance the car for a longer period of time.

However, most experts do not recommend financing a car for more than four years. Like we said before, cars will lose value quickly, so you don’t want to commit to a longer term and risk wanting to sell the car before you’ve finished paying it off.

Besides, the longer the term, the higher the interest rates.

Most financial experts recommend a maximum of four years. Paying it off in three years would be ideal, but you could stretch it to five years if you really need a car ASAP. But never go for longer than five years. It won’t make sense in the long run.

How can I pay cash for a car?

The truth is that you should pay cash for a car of you can afford to. Why? Because you spend less by paying cash. It is a more responsible financial choice because by paying cash, you are making sure that you actually buy a car that you can afford.

Besides, most dealerships will give you a discount price if you pay cash, and you will be able to negotiate an even better price. Most importantly, you will not pay any interest. And while interest might not seem like such a big deal, it can add up quickly.

So, how to go about it? Sit down to do some math and be honest about what you can (and should) afford. You can also get some of the money by selling your old car and buying a cheaper one.

Market research is also a key aspect of paying cash: know what car you want and how much you need to save before being able to afford it.

What do I need to buy a car?

Once you’ve done your numbers, made a decision, and are ready to make the commitment, here is what you need to provide the car dealership in order to buy the car:

Driver’s license

The dealership will need to check that you are a licensed driver before giving you the keys to your new car.


Before giving you the keys, the dealership will need to see proof of insurance. This is a requirement in almost every state.

Credit score

Before finalizing the sale, the dealership will review your credit score and credit history. Make sure everything is in order before getting to this point. It will make things run smoother.


You want to make sure your form of payment is in order before making the purchase, whether its cash, a loan, or a check.


If you don’t have a great credit score or history, or if you are buying the car through a loan, you may have to supply some references in the form of people who can vouch for you.

Pay stubs