How Much Car Can I Afford?

Cars are becoming increasingly expensive, with new cars averaging $46,000 and used cars averaging $27,000. You may find yourself wondering how much car you can afford.

The Home Media reviews team will explain how much you should spend on a car loan payment and your options for purchasing and financing a new or used car. It’s important to compare the best auto loan rates and best auto refinance rates from different providers when you’re shopping for a vehicle.

4 Steps To Determine How Much Car You Can Afford

Calculating how much car you can afford may help you save time and money in the long run. Several factors affect your auto loan rate, including: 

  • Your loan amount
  • Your down payment
  • Your loan term
  • Your credit score
  • The type of vehicle you choose (lease, used or new)

four steps to help you find your monthly budget:

#1 Calculate Your Monthly Car Payment

You should only spend around 10-15% of your monthly salary on your car loan. This does not include additional costs such as fuel, insurance, repairs and maintenance.

How much car you can afford = starting point x monthly payments The table below shows examples of annual salaries and the monthly payment amount you should not exceed for a car loan. You can use your annual income as a starting point to calculate how much you can afford to spend on a car loan each month. For example, if your salary is $50,000 per year, you should not spend more than $416 per month on your car loan.

Monthly Take-Home Pay


Monthly Car Payments Should Not Exceed…


$150 to $225 per month


$300 to $450 per month


$450 to $675 per month


$600 to $900 per month


$750 to $1,125 per month


$900 to $1,350 per month

You should be realistic about how long you want your monthly payments to be. Most loan companies offer terms between 24 and 84 months for used and new cars. If you choose a longer loan term, your monthly payments will be lower, but you will end up paying more overall because of the additional interest that accumulates.

#2 Determine Your Fuel and Insurance Costs

Before making a decision to buy or lease a car, take into account how much you will spend on gas and car insurance. These costs vary depending on where you live and your driving record, as well as the car you have selected.

The gas mileage for different vehicles can be found on the U.S. Department of Energy’s website. They also have a tool that allows you to compare the annual fuel cost estimates for different vehicles.

To get auto insurance quotes, you can either contact your agent or the insurance company you’re interested in. It’s easy to get car insurance quotes from different companies so you can compare rates. When you’re figuring out your monthly car payment and all your other expenses, try to keep your total costs below 20% of your monthly after-tax income.

#3 Calculate Your Car Loan Amount

Once you’ve calculated your affordable monthly payment, you can begin to determine how much you can borrow. The amount a lender will let you borrow depends on several factors, including:

  • Your credit score: This will affect the annual percentage rate (APR) on the loan and how much the bank is willing to lend you.
  • Your loan term: This is how many months you’ll have to pay your auto loan off.
  • Whether you buy a used or new car: New car loans tend to have lower APRs than used cars.

#4 Set a Purchase Price

When buying a used car, pay attention to the history of the vehicle, as well as the mileage The amount of the loan you calculated for your car may not be the price you actually pay. When shopping for a car, be aware of factors other than the sticker price. In most states, you’ll have to pay sales tax and fees when buying either a new or used car. When considering a used car, research the vehicle’s history and mileage.

Here’s a breakdown of how much you can expect to pay in fees or taxes:

  • Sales tax: Up to 11% and varies by state
  • Registration fees: Typically range from $50 to $300, although some states, like Georgia, charge as much as $2,465 on average
  • Documentation fees: Generally between $100 and $500, depending on your state

You can lower the amount of money you need to borrow for your new car by making a down payment or trading in your old car.

Consider Your Purchasing Options

Look at all of your options before buying a car if you only have a small amount of money to spend. You could lease a car, or buy a second-hand car or a brand-new car.


Leasing a car is essentially renting it from a dealership for a period of time. The monthly payments are lower than if you were to buy the car outright, but keep in mind that there is usually a mileage limit and the money you put toward the lease doesn’t build any equity.

Buying a Used Car

Purchasing a used car is usually cheaper than leasing a car, and you have more freedom with a used car. Used cars are usually priced lower than new cars, so your monthly payments will be more affordable. Additionally, car expenses like insurance are usually lower for used vehicles.

Buying a New Car

If you’re looking to buy a new car, it’s important that you do your research so you know which make and model you want. Knowing a car’s fair market value will help you negotiate the best deal possible at a dealership.

How Can I Lower My Car Payment?

If you improve your credit, you could get a lower interest rate, which would lower your monthly car payment without having to buy a new car.

Even if your credit report stays the same, you may be able to get a lower interest rate by shopping around. The interest rate is part of the price, so don’t just accept the first offer you get. In the example above, going with the lower 5% interest rate would save you $4,368 over the life of the loan.

If you are looking to lower your car payment, one option is to surrender your current car. This is treated the same as a repossession, and the lender will sell the car at an auction. The downside is that you will end up owing the lender the difference between the balance and what the car sold for at auction, and your credit score will be harmed.

Can Bankruptcy Help?

In a Chapter 7 bankruptcy, you can surrender the car to the lender and be done with the loan. When you file for Chapter 7 bankruptcy, you can choose to surrender your car to the lender. This will allow you to be done with the loan.

Option 1 – Eliminate Your Other Debt so You Can Afford the Car

If you’re struggling to make your car payments, one option you might want to consider is bankruptcy. Bankruptcy can help by eliminating other debts, which frees up more money to put towards your car payment. Additionally, your credit score is likely to improve within a year of filing for bankruptcy, which may make it possible to refinance your car loan at a lower interest rate.

Option 2 – Redeem the Car

The following text is about redemption, which is a less commonly used option than reaffirmation in a Chapter 7 bankruptcy. With redemptions, you only pay the value of the car as opposed to the loan balance. The catch is, you have to completely pay off the car in a single payment. It is possible to get a loan while in a Chapter 7 bankruptcy in order to redeem your car. There are companies that specialize in making loans to people in this situation. Most of these companies charge high-interest rates. The high-interest rates often cause people to pay more than if they had reaffirmed with the original lender.

Chapter 13 bankruptcies have a process called “Cram-Down” which is similar to the more common redemption process. Cram-Down allows you to pay only the value of the car instead of the loan balance. This is useful for people who are “upside-down” on their loan (i.e. owe more than the car is worth). To use Cram-Down, you must have taken out the loan more than 910 days before you filed for bankruptcy. The interest rate is also “crammed down” in a Chapter 13 bankruptcy. You don’t have to have all the money upfront in order to do a Cram-Down because Chapter 13 bankruptcies have built-in payment plans of thirty-six to sixty months.

Option 3 – Surrender the Car

You can get rid of your car and the debt in a Chapter 7 or Chapter 13 bankruptcy by designating it as a dischargeable unsecured debt. In most Chapter 7 bankruptcies, you don’t have to pay anything to the car loan company, and your debt is eliminated. This prevents deficiency balance lawsuits that can occur with repossessions and voluntary returns. If you surrender your car in a Chapter 13 case, the car loan company will get the same amount as other unsecured creditors. Unsecured creditors usually only get a small amount of money in Chapter 13 cases.

If you are planning on surrendering your car during bankruptcy, you must continue to insure the vehicle until you have officially surrendered it. Get written proof from the dealership that you have surrendered the car once you have dropped it off.This text is discussing how, after a person files for Chapter 7 bankruptcy, it becomes easy for them to get a car loan but the interest rate they are offered may not be ideal.The people who have recently eliminated their debts receive letters from car lots about their deals on used cars. The car lots do this because they know that these people are good credit risks and have more money to pay them.Don’t let these people trick you into taking a bad deal. Wait until you can get a good interest rate.

How Much Car Can I Afford: Conclusion

Although there is no specific amount you are allowed to spend on a car, there are multiple recommendations that financial advisors suggest. You can determine how much you can afford either by following our steps or by using an affordability calculator. When deciding on a company to get a car loan from, be sure to compare different offers to find the best option.


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