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How much should I spend on a new car?

Learn how to find a car in your price range.

Cars can get expensive. When you can pay for a car in installments, the difference between a used 2002 Honda and a brand new Benz might not seem like that big of a deal — especially if you stretch out the term long enough. But buying within your price range can help you stay financially healthy.

How much can I afford to spend on a new car?

The amount you should spend on a new car largely comes down to your finances and your personal tastes, but some experts suggest that you should aim to spend approximately one third of your income on debt repayment, including car loans. Assuming you have no other debt and make $3,500 a month, this means that you could spend up to $1,155 on car loan repayments.

Of course, most people will have debts such as credit card payments and mortgage payments that will take away from this amount, so in reality you’d probably be spending closer to 10-15% of your income on a car.

In fact, some finance experts stand behind the 20/4/10 rule, in which you’re advised to make a 20% down payment on your car, pay back your loan in 4 years or less and not let your car payments exceed 10% of your income.

If you’re a car enthusiast or use your car a lot, you might push the limits and spend 15% to 30% of your income as long as you can afford it.

Why 10% to 15%?

  • Keeps you from borrowing more than you need. The more you borrow, the more you pay in interest
  • Leaves room for the cost of owning a car. Between insurance, gas, maintenance and repairs, the ongoing costs of owning a car add up quickly.
  • Car value depreciates rapidly. Think of your car as a useful tool, not as an investment. You don’t want to pay for something that’s not worth what you’ve invested in it.

Compare car loans from top providers

Name Product Min. Loan Amount Interest Rate Loan Term Min. Credit Score Requirements
CarsFast Car Loans
4.90% to 29.90%
12-96 months
Min. income of $1,800 /month, 3+ months employed
Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs. Apply online to purchase a new or used vehicle and get the vehicle delivered to your door.
Loans Canada Car Loans
0% to 29.99%
3-96 months
Min. income of $1,800 /month, 3+ months employed
Get access to financing from multiple lenders across Canada through a single application with Loans Canada. Bad credit, CERB and EI borrowers are considered.
Car Loans Canada
3.99% to 29.95%
12-84 months
Min. income of $2,000 /month, 3+ months employed
Search thousands of vehicles online, including $0 down options, from dealers across the country and get matched with affordable financing options. Auto loans are also available to those with bad credit, consumer proposals and bankruptcies to help rebuild credit.
Coast Capital Car Loan
18-84 months
Able to service debt payment of $300/month
Finance or lease both new and used vehicles with competitive rates and flexible terms from one of Canada's largest credit unions. No credit union membership required for this product.
Canadian Auto News
3.99% to 29.95%
12-84 months
Min. income of $2,000 /month, 3+ months employed
Answer a few simple questions to get matched with affordable financing options. Auto loans are also available to those with bad credit, consumer proposals and bankruptcies to help rebuild credit.
LoanConnect Car Loans
9.90% to 46.96%
3-120 months
No min. income requirement
Get access to 25+ lenders through LoanConnect's brokerage. Receive pre-approval in as fast as 60 seconds and get your funds in as little as 24 hours.
Canada Auto Finance
3-96 months
Min. income of $1,500 /month, 3+ months employed
Canada Auto Finance is a broker that connects borrowers with partnered local lenders. Financing for a new or used car is available for borrowers with bad credit, no credit, CERB, EI or bankruptcy.
Carloans411 Car Loans
1.90% to 19.99%
Up to 72 months
Min. income of $1,600 /month, 3+ months employed
Get connected with suitable lenders through CarLoans411. Finance your next car, van or truck with loans available in amounts from $500 to $50,000. Check eligibility for this loan through LoanConnect.
Fairstone Secured Personal Loan
19.99% to 23.99%
36-120 months
Established credit history and own your home
Fairstone offers secured personal loans up to $50,000.

Compare up to 4 providers

Don’t have a car in mind yet? Find one at the right price

By deciding ahead of time that you won’t spend more than 15% of your yearly income on a car, you’ll have a clear price in mind when starting your search.

Annual incomeHow much you should spend on a car (15%)

Buying a car for less than $3,000

  • There are thousands of used cars being sold for less than $5,000. Check eBay, Craigslist,, the local classifieds, used car dealerships and online auctions.
  • Know what to look for in a used car. By following a checklist and knowing what to be aware of, you could avoid purchasing a lemon.
  • Consider financing rather than leasing if it helps you get a more reliable or efficient vehicle, or if you’re caught short and urgently need a new car to get to work. Specialized used car loans let you borrow as little as $1,000 with fixed interest rates starting at 5-6%.
  • You may not want comprehensive car insurance for a vehicle under $3,000, even if you’re the kind of person who gives your car a name and emotionally bonds with it. Consider sticking to third party property damage only. This is one of the cheapest types of car insurance, but it still offers minimal protection.

Buying a car for less than $15,000:

  • You can find recent-model used cars online for $15,000 or less.
  • Car loans are available for higher amounts, and you’ll be able to find a cheaper rate if you can use your car as collateral as you would with a secured car loan.
  • Vehicle auctions are popular among car dealers. This is where a lot of them go to pick up a bargain for resale at a higher price. . Learn about car auction etiquette and you can beat them to the punch, picking up and government vehicles at a fraction of their value.
  • You could save money by opting for a more recent or popular model, even if it costs a little bit more. Spare parts are easier to find, so it can keep repair, maintenance and car insurance costs down.
  • Comprehensive car insurance may not deliver value for money in this price range. Consider third party property damage insurance for important but inexpensive coverage, or third party fire and theft insurance, which covers legal liability as well as theft and fire damage, while still being relatively affordable.

Buying a car for $15,000 or more:

  • Used vehicles can be a good choice for every budget, including those in higher price ranges. Look around and you might find current-model cars in almost pristine condition for half of what they cost new.
  • If you’re planning on financing your vehicle, it’s could lower your rates to use your car as security when taking out a higher loan amount. Used cars can still be used as security, but you might find that new car loans have a cheaper rate.
  • Vehicles in this price range and above can be loaded with additional features and electronics. If you want to save money, look for the features that deliver value and safety, rather than the luxuries, cosmetic features or unneeded conveniences.
  • If you want to get a lot of use out of your car and plan on treating it like your own child, comprehensive car insurance can deliver a high level of protection.

Bottom line

Remember that everyone’s financial situation is different. Compare every option critically before deciding on a loan. You can compare all your car loan options here or check out some of the articles below for more information:

  • Are you an Uber driver, or planning to become one? Check out Uber car loans to see if they can compete with the options above.
  • Have you seen a dealer offering a 0% car loan? Here’s what you should know to decide whether it’s right for you.
  • Want to save money by putting your future car up as collateral? Compare secured car loans.
  • Want the safety of an unsecured loan? Compare some options here.

Frequently asked questions

Picture: Getty Images

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