How much car can I afford with a car loan?

I want to buy a nice car, but I don't want to overextend my finances. How do I know what kind of car I can afford if I’m taking out a loan?

Answer
While there is no specific formula for what kind of car or how big of a car loan you can afford, a good guideline is to spend no more than 15% of your pre-tax income on a car payment.
Examine all aspects of your budget to determine what price of car you can afford. Consider the following when making a budget:
  • How much you pay for fixed and variable expenses each month (utility bills, clothes, etc.)
  • How much you’ll need to pay for the car’s gas, maintenance, and insurance
  • How often you make additional large purchases or go over your planned budget
Deduct these expenses from your monthly take-home pay and then see if car payments are doable with the remainder. Naturally, the more you make or the less you spend on other things, the nicer car you’ll be able to afford.
If you want to free up some extra cash, see if you can find a cheaper car insurance policy that fits your coverage needs. Jerry can help you compare dozens of competitive quotes after a quick 45-second sign-up—and switching policies is just as effortless.
Eric Schad
Answered on Oct 26, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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