How much should you spend on a new car? | finder.com
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How much should you spend on a new car?

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Learn the effective rule for buying cars in your price range.

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.

Why 10% to 15%?

  • If you’re using a loan to buy a car, sticking to this rule can stop you from wasting money and borrowing more than you need.
  • Between insurance, gas, maintenance and repairs, the ongoing costs of owning a car add up quickly. This leaves you a solid buffer to afford your vehicle.
  • By sticking to this price plan, you can skip signing a contract for a lease. Since you’ll own your car at the end, this can save you considerable amounts of money in the long run.
  • Car value depreciates rapidly. Think of your car as a useful tool, not as an investment. You don’t want to pay for something not worth what you’ve invested in it.

How to find a car 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%)
$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

What are my financing options?

Before you compare car loans, it helps to know what you’re working with. This repayment calculator lets you compare loans by how much they will actually cost you. Fill in the loan amount, loan term, interest rate and repayment frequency to see how much different loans actually cost.

Compare car loans from top providers

Rates last updated September 22nd, 2018

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Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
Name Product Product Description Minimum Credit Score Term of Loan Requirements
car.Loan.com Car Loans
Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
300
Varies by lender
Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Auto Credit Express Car Loans
Get connected with an auto lender near you, even if you have bad credit.
300
Typically 3 to 6 years
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.
LendingClub Auto Refinancing
Lower your monthly car payments and save on interest through a fast and easy online application process.
Fair or poor credit
Minimum of 2 years
Car must be less than 10 years old with fewer than 120,000 miles. Current loan must have a balance between $5,000 and $55,000 and at least 24 months left in its term.
MotoRefi Car Loan Refinancing
A car loan connection service for borrowers looking to refinance.
525
1–6 years
Must have an income of at least $2,000/month and have a vehicle with less than 100,000 miles.
myAutoloan.com Car Loans
Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.
550
24 to 84 months
Must have a Social Security number; make $24,000+/year; have no open bankruptcies.
LendingTree Auto Loans
Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.
670
Typically 1 to 7 years
Must be a US citizen and 18+ years old. Must have good to excellent credit.
Capital One Auto Financing
You could qualify for a car loan of up to 40000, but not all dealers accept this bank's financing.
Good to excellent credit
36 to 72 months
Valid street address; existing Capital One accounts in good standing. Car must be a 2006 model or newer with less than 120,000 miles.
Wells Fargo Auto Loans
Auto loans with high loan amounts to cover your car purchase or refinancing needs.
Good to excellent credit
1 to 6 years
Your income and assets must support your existing debt obligations and the desired loan amount.

Compare up to 4 providers

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 ccould 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. . Learn about car auction etiquette and you can beat them to the punch, picking 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

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Elizabeth Barry

Elizabeth is an editor for finder.com.au specialising in personal finance and fintech. She enjoys reading PDSs so you don’t have to.

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