First-Time Buyers: How Much Should I Spend on My Car?

As a first-time car buyer, how much vehicle can you afford, and what’s a responsible price target? Responsible questions. Read on to know what to prioritize when it comes time to find a dealer, negotiate and pay the fee for a new car.

Related: How to Negotiate With a Car Dealer

Budgets are important, especially when you’re buying a car. As with all things financial, there’s a debate over how much money you should spend on your next vehicle. Cars are simply more expensive now, with new and used vehicle prices rising 30% over the past five years, according to Cars.com data. You should check with a financial planner to determine what price is right for you; you don’t want to become “car poor” because you can’t afford anything for the month after making your car payment.

For the majority of shoppers, the budget hits home in the form of a monthly car payment. More than 80% of new-car buyers today finance or lease their vehicle, according to Experian, while only about 36% of used-car shoppers finance or lease their ride.

Shoppers are also adapting to rising sticker prices in other ways. Cars.com’s research shows that more shoppers are saving for longer and saving a larger percentage of a car’s purchase price before buying. For a lower-priced used car, that means there’s less to save or that a trade-in can make up the difference. Not needing to finance a car saves you interest and other fees over time, but that can also put a nicer, newer car out of reach for many shoppers. There’s no shame in financing your car, so long as it fits in your budget.

So, if you decide to lease or finance your car, how should that monthly payment turn into a new-car budget, and how much should it be? Start with some of our financing tips below.

Know Your Expenses

Estimating how much your car payment is should depend on many factors. How much money do you have coming in, and how much of it is going out on rent, mortgage payments or student loan debt? Those are relatively entrenched costs — and they’re harder to change than, say, deciding to eat out at restaurants less often or ditching your cable TV payment.

Expert estimates range broadly. Greg McBride, senior vice president, chief financial analyst at Bankrate.com, advises that a car payment should equal no more than 15% of your pretax monthly pay. That means that if you make $50,000 a year, your monthly car payment could be as much as $625.

But for many of us, it should be lower. The 15% ceiling applies only “if you don’t have any other debt other than a mortgage,” McBride cautioned. Not many first-time buyers can say that, so be smart about how much money you’re putting aside.

Car Payments Aren’t the Only Expense

You’ll also have gas and insurance to pay for. Don’t be surprised by how tolls and parking expenses mount or forget to have a regularly funded stash o’ cash for maintenance and repairs. All of those expenses have led some experts to recommend even lower budget limits for your car purchase. For example, NerdWallet recommends having a maximum car payment of 10% of your take-home pay (read: after taxes and other deductions), along with keeping all of your car expenses to less than 20% of your take-home pay.

Got an Idea of a Monthly Car Payment?

Good. Now, pull up Cars.com’s auto affordability calculator and fill in the monthly payment you’ve decided on. If you have a car you plan to trade in or sell, estimate its value through Cars.com’s valuation tools. Then, add that value into the affordability calculator, along with your estimated down payment. McBride recommends having at least 10% down if you’re financing a new car and 20% for a used car. Don’t assume your trade-in will suffice as a down payment.

Next, input your ZIP code to add your sales tax into the calculation, as well as your estimated credit score and the length of the loan term. The calculator will then show you the total cost of the loan and interest.

Focus on the Car’s Price, Not the Payment

Plug in all the numbers and you should have an idea for how much you can afford to pay monthly on a car. Learn more about the negotiation process and our tips, and if you did your homework with Cars.com’s car affordability calculator, you can now focus on making sure you find a vehicle that fits that price. The monthly car payments will work themselves out.

“The bigger picture is, how much are you paying for the car?” McBride said. “Focus on getting the best price you can for the car, limiting those other out-of-pocket cost and add-on costs. And if you do all that, the monthly payment will [follow] — you’ll have a manageable monthly payment.”

In the market for a “cheap” car? Find cars priced at $8,000 or less near you.

More From Cars.com:

• 2024 Cars.com Affordability Report: Best Value New Cars
• Now Is a Good Time to Sell Your Extra Used Car; Here’s Why
• Prepare to Sell Your Car
• What Should a Used-Car Inspection Include?
• How Do I Sell an Older Car?
• Common Mistakes When Selling or Trading to a Dealer

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Editor’s note: This story was updated Sept. 19, 2024.

Cars.com’s Editorial department is your source for automotive news and reviews. In line with Cars.com’s long-standing ethics policy, editors and reviewers don’t accept gifts or free trips from automakers. The Editorial department is independent of Cars.com’s advertising, sales and sponsored content departments.