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How much should you spend on a car?

Learn how much should you spend on a car, and 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 loan term long enough. But buying within your price range can help you stay financially healthy. Keep reading to learn how much should you spend on a car and where to look when shopping for affordable cars.

How much should you spend on a new car?

How much 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, many experts suggest using 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 spend no more than 10% of your income on all car-related expenses.

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 to cover all of your other expenses.

Strategies to decide how much car you can afford

Why spend 10% to 15% of your salary on a car?

When deciding how much should you spend on a car, it can be helpful to stay within the 10% to 15% guideline because it:

  • 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.

Car loan monthly payment calculator

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Compare car loans from top providers

Name Product Loan Amount Interest Rate Loan Term Min. Credit Score Requirements Table description
Loans Canada Car Loans
$500 - $35,000
0% - 29.99%
3 - 96 months
300
Min. income of $1,800 /month, 3+ months employed
Compare rates from multiple lenders.
Complete a single application to get quotes from different lenders. Bad credit, CERB and EI borrowers considered.
AutoLoanProviders
$7,500 - $85,000
3.99% - 29.99%
12 - 96 months
300
Min. income of $1,800 /month, 1+ months employed
Available in Ontario only.
Apply online and get your new vehicle delivered to your door anywhere in Ontario free of charge. All credit scores considered.
CarsFast Car Loans
$500 - $75,000
4.90% - 29.90%
12 - 96 months
300
Min. income of $1,800 /month, 3+ months employed
Get a new or used vehicle delivered to your door.
Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs.
Coast Capital Car Loan
$10,000 - No Max.
Varies
18 - 84 months
650
Able to service debt payment of $300/month
Competitive rates and flexible terms.
Finance new and used vehicles from one of Canada's largest credit unions. No credit union membership required. Available across Canada except SK, QC, NT, NU, YT.
Splash Auto Finance
$10,000 - $50,000
9.90% - 29.90%
24 - 84 months
300
Min. income of $2,200 /month, 3+ months employed
Apply with any credit score.
Get financing for a new or used car. Auto loans for borrowers with fair credit, bad credit, no credit or bankruptcy.
goPeer Car Loan
$1,000 - $25,000
8.00% - 31.00%
36 - 60 months
600
Min. income of $40,000 /year
P2P platform with competitive rates.
Canada's first regulated consumer peer-to-peer lending platform that connects creditworthy Canadians looking for a loan with Canadians looking to invest.
LoanConnect Car Loans
$500 - $50,000
9.90% - 46.96%
3 - 120 months
550
No min. income requirement
Pre-approval in as little as 60 seconds.
Get access to 25+ lenders through this brokerage. Get your funds in as little as 24 hours.
Canada Auto Finance
$500 - $45,000
4.90% - 29.95%
3 - 96 months
300
Min. income of $1,500 /month, 3+ months employed
Get financing from 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
$500 - $50,000
1.90% - 19.99%
Up to 72 months
300
Min. income of $1,600 /month, 3+ months employed
High application approval rate.
Get connected with suitable lenders to finance your next car, van or truck. Check eligibility for this loan through LoanConnect.
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How much should you spend on a car by salary?

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%)
$20,000$3,000
$40,000$6,000
$60,000$9,000
$80,000$12,000
$100,000$15,000
$150,000$22,500
$200,000$30,000

Buying a car under $5,000:

  • There are thousands of used cars being sold for less than $5,000. Check eBay, Kijji, autoTrader.ca, 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. Used car loans let you borrow as little as $1,000 with fixed interest rates usually starting at 5-6% interest.
  • You may not want comprehensive car insurance for a car under $5,000, 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 under $15,000:

  • You can find recent-model used cars for under $15,000 online or at dealerships.
  • 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 more in our guide to car auctions here. Buying from an auction can help you beat dealers to the punch, and even get government vehicles at a fraction of their value. Check sites like remarket.ca to find an auction near you.
  • 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:

FAQs on how much you should spend on a car

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