How much should I spend on a new car?

Cars can get expensive. When you can pay it 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 a suggested range is around 10% to 15% of your annual income. If you’re a car enthusiast or are in your car a lot , you might push the limits and spend 15% to 30% of your income.

Calculate how much you should borrow

Consider three main factors when deciding how much you should borrow on your car loan: down payment, loan term and vehicle expenses.

You can use the calculator below to find out what car loan amounts and terms you could afford for a new car.

Compare car loans from top providers

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Name	Product	Filter Values	Minimum credit score	APR	Loan term	Requirements
PenFed Auto Loans			Varies	Starting at 1.79%	3 to 7 years	Active membership with PenFed	Low APR car loans from a well-known credit union.	Go to site More Info	Compare	loading Fetching your data...
Carvana			No minimum credit score	3.9% to 27.9%	Varies	18+ years old, annual income of $4,000+, no active bankruptcies	Get pre-qualified for used car financing and receive competitive, personalized rates.	Go to site More Info	Compare	loading Fetching your data...
car.Loan.com Car Loans			300	Varies by network lender	Varies by lender	Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.	Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.	Go to site More Info	Compare	loading Fetching your data...
CarsDirect auto loans			No minimum credit score	Varies by network lender	Varies by network lender	Must provide proof of income, proof of residence, and proof of insurance.	Save time and effort with this lending service specializing in beginner-friendly or subprime car loan.	Go to site More Info	Compare	loading Fetching your data...
Auto Credit Express Car Loans			300	Varies	Varies	Must be employed full-time or have guaranteed fixed income of at least $1,500/month and be a current resident of the US or Canada.	Get connected with an auto lender near you, even if you have bad credit.	Go to site More Info	Compare	loading Fetching your data...
Monevo Auto Loans			500	3.99% to 35.99%	3 months to 12 years	Credit score of 500+, legal US resident and ages 18+.	Quickly compare multiple online lenders with competitive rates depending on your credit.	Go to site More Info	Compare	loading Fetching your data...
LendingTree			Good to excellent credit	Starting at 0.99%	Varies by lender	18+ years old, good to excellent credit, US citizen	Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.	More Info	Compare	loading Fetching your data...
myAutoloan.com Car Loans			550	Starting at 1.89%		550+ credit score, no open bankruptcies, $24,000+ annual income, US citizen or permanent resident, 18+ years old	Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.	Go to site More Info	Compare	loading Fetching your data...

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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.

Buying a car for less than $3,000

• There are thousands of used cars being sold for less than $3,000. 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 5.69%.
• 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 $10,000 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.
• 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. When purchase a vehicle at an auction, you can pick up exfleet 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.

Frequently asked questions

• What if I need two cars?

  Your budget should dictate how much you can spend on your cars, whether you’re buying one or two. Use the guideline of 10% to 30% of your budget for the total cost of all cars. If you have two cars, your budget shouldn’t increase. Rather, the cars you buy should be cheaper. This will prevent you from spending too much on a vehicle and hurting your finances.

• How much should I put down on a car?

  You should expect to put down between 10% to 20% of the car’s value at signing. This can include cash money and the trade-in value of your previous vehicle. Check out additional tips on saving up for a car down payment.

• Can I use a loan for repairs?

  Once you buy a car, you’re on the hook for its repairs. If you don’t have your insurance deductible as part of your emergency fund, then you might want to turn to a loan. Fortunately, you are able to use a personal loan to cover any repairs that may come with owning a car.

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