Leather interior. Rearview cameras. Automatic emergency braking. While you may dream of a shiny new car with all of these features and more, you may need to prepare for sticker shock. According to Kelly Blue Book, the average new car costs more than $48,397 in September 2024, and used cars average more than $25,361. You have to think about your needs, budgeꦰt, and other financial priorities, then decide how much you can spend and wish to spend to meet your transportation needs.

How to Calculate How Much You Can ♛Afford to Spend on a Car

When thinking about what you should spend on a vehicle, keep in mind that the purchase price is only one part of 🌜your expenses of buying a new car.

To make sure you can comfortably afford the car you want, you'll need to account for: 

1. Income 

Spend no more than 10% of your salary on transportation expenses, including car payment, insurance, and fuel. For example, if your salary is $4,000 per month, then you should spend no more than $400 on transportation. As well, it's advisable that your down payment be at least 20% of the total purchase price of the vehicle and that your loan term be 48 months or less.

To be sure, that range is simpl🔴y for guidance. Depending on your income and expenses, you may have to budget less. For example, if you live in an area with high housing costs, then you’ll have ༺less to spend on a car. 

2. Existing Debt

If you have debt like student loans, medical bills, or credit card balances, then y📖our payments may eat up a big part of your income. Essentially, debt will reduce your car-buying budget. 

3. Financing

When you apply for a loan,𓄧 lenders review your application and your credit score. Once your loan is approved, the interest rate will be set. That rate, based on your credit s🍬core, helps determine your repayment amount. 

Your interest rate affects both your 澳洲幸运5官方开奖结果体彩网:monthly payments and total repayment costs—a lower rate means you will spend less over the lifeꦫ of the loan.

In August 2024, for a 48-month consumer loan from commercial banks, the average interest rate on a car loan was 8.63%. You may find a lower or higher rate on a car loan depending on if you have good or subprime credit.

4. Taxes and Fees

When you buy a car, the 澳洲幸运5官方开奖结果体彩网:purchase price is only part of your total layout. You’ll also pay fees—and, in most states, 🌃taxes—including: 

• Sales tax: If your state charges sales tax, then you’ll pay that on the purchase price minus any discounts and trade-in allowances. A handful of states don’t tax car sales.
• Registration fee: You must register your vehicle. Registration fees vary by state and can be tied to multiple factors. Depending on the vehicle and where you live, you might pay as little as $15 per year or considerably more than $100 per year.
• Tag and title fee: You will have to pay for the title and license plates for your vehicle. 
• Documentation fee or dealer fee: In some states, documentation or dealer fees are common. These fees are in addition to the other costs and vary by location. 

To demonstrate how those expenses can add to your total cost, consider an example. If you bought a $30,000 car in Florida, then you also wou꧃ld pay the following:

• Sales tax: $1,800 (6% sales tax)
• Initial registration fee: $225
• New title fee: $77.25
• Original license plate fee: $28
• Dealer fee: $399 (varies by location)
• Total: $2,529.25

5. Car Insurance Premiums

Drivers are required to car𒅌ry liability insurance in nearly🎀 every state. However, most drivers also opt for collision and comprehensive coverage for extra protection. 

According to the Zebra, the average 澳洲幸运5官方开奖结果体彩网:car insurance policy in the United States costs $880 for a six-month policy, or about $147 per month as of November 2024. Your premiums are dependent on the type of car you own, your age, your driving history, your location, selected coverage options, and the number🍸 of miles that you expect to drive. 

Remember that the kind of car you drive affe🐼cts the amount of insurance that you 🌠pay. New, more expensive cars usually cost more to insure, although exceptions to this rule do exist.

6. Maintenance Fees

While you may not be thinking about repairs on a new vehicle, all cars need maintenance. When not properly maintained, regular repairs can pile up and force you to seek out an auto repair loan. All cars need everything from a tune-up to new tires on a timely basis. In general, maintenance costs about $900 annually.

7. Fuel

If you commute to school or work, gas is another expense to add to your budget. According to a report from the Bureau of Labor Statistics, in 2023, the average person spent $2,449 per year on gas, or $204 per month. However, if you have a lengthy commute or ༒enjoy road trips, then your actual cost may be much higher. To add money back to your budget, buy a car with a smaller motor that burns less fuel.

Deciding Your Budget 

Using the above information, here’s an example of how to cr𓆉eate a budget for buying a car. For this example, we rolled the cost of tax, tit♕le, and fees into the purchase price of the car. 

If your annual salary is $100,000 and you follow the 20/4/10 rule (20% down payment, 4-year loan term, and 10% of salary for transportation costs), then you’♛ll budget about $833 per month for transportation. After subtracting the cost of your insurance and setting aside money for fuel and maintenance, that leaves you with $330.50 per month to use as a car payment.

If you get a 48-month loan with an interest rate of 8.30% and put down 20% of the vehicle price, the most you could afford is $16,687.50. With 20% down, you would bo💛rrow $13,350 and have a monthly payment of $328.

Buying a Car

Once you find a car that fits your needs and your budget, you can negotiate with the d𝐆ealer for the besಌt price. Before heading to the dealership, secure financing ahead of time so you can shop around and find the best deals—and have more negotiating power while completing the deal.

The Bottom Line

Knowing how much to spend on a vehicle is about more than just knowing the price of the car you want. It's important to remember that owning a car has other expenses: fuel, insurance, maintenance, registration fees, loan interest, and more. You'll be in the best position financially if you have plenty of money to put toward a down payment and limit interest payments by seeking a loan with a shorter term. And when considering how much you can afford to pay each month, be sure to include 澳洲幸运5官方开奖结果体彩网:other expenses in the calculation.