You can generally afford a car payment that is no more than 10% to 15% of your monthly take-home pay. Many financial experts recommend keeping your monthly auto loan payment within this range to maintain a balanced budget
. Here are key guidelines to consider:
- Monthly Car Payment: Aim to spend less than 10% of your take-home pay on the car loan payment itself. For example, if your after-tax income is $3,000 per month, a $300 car payment is affordable
- Total Car Expenses: Your overall car-related expenses—including loan payment, insurance, fuel, maintenance, registration, and taxes—should ideally not exceed 20% of your take-home pay
- Loan Term: Shorter loan terms (36 months for used cars, 60 months for new cars) are recommended to avoid paying excessive interest and reduce the risk of owing more than the car’s value
- Down Payment: A larger down payment lowers the loan amount and monthly payments, making the car more affordable
- Credit Score and APR: Your credit score affects the interest rate you qualify for, which impacts monthly payments and total loan cost
To determine your exact affordable car payment, you can use car affordability calculators that factor in your monthly budget, loan term, down payment, credit score, and interest rates
. In summary, keep your monthly car payment under 10–15% of your take-home pay and total car expenses under 20% to ensure affordability without straining your finances.
