How To Figure Out What Car You Can Afford

Written by Banks Editorial Team
5 min. read
Written by Banks Editorial Team
5 min. read

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A car is one of the most expensive purchases you ever make. You can buy the car outright or pay a loan for several years before getting the vehicle title. Some people continue to lease cars and continuously pay for new models. Regardless of your approach to buying a car, it can take up a large amount of your budget. A car is an important method of transportation, but spending too much on a vehicle can cause financial stress. We’ll share some strategies to navigate the car market and determine how much you can afford.

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Factors that Can Affect What Car You Can Afford

Car buying is a complex process with many components. These factors play a role in how much you can spend on a new vehicle. 


Your salary determines your budget. If you make $60,000 per year after taxes, you can’t exceed $5,000/mo. without going into unmanageable debt. A large salary gives you a higher ceiling for your monthly budget. Most experts recommend allocating 10%-15% of your income towards your car. You should use your annual salary to calculate your monthly income and use that number for the percentage. We have provided two examples below:

Example 1

  • Income: $50,000/yr. = $4,167/mo.
  • 10%-15% of the $4,167 = $417-$625 per month for the auto loan

Example 2

  • Income: $60,000/yr. = $5,000/mo.
  • 10%-15% of the $5,000 = $500-$750 per month for the auto loan

You can opt for a loan with a longer term to reduce the monthly payments. This option results in more interest in the long term, but you get more flexibility with your budget. Some buyers can get financing for a car that falls below 10% of their monthly income. You don’t have to buy the fanciest car model just to hit the 10% threshold. However, you can face financial hardships by allocating more than 15% of your budget to auto loan payments.

Credit Score

Your credit score is one of your most important financial numbers beside your income and expenses. The major credit bureaus use payment history, credit mix, and other factors to determine your score. Your credit score will fall into one of these categories:

  • 300-579: Poor
  • 580-669: Fair
  • 670-739: Good
  • 740-799: Very good
  • 800-850: Excellent

Most lenders have minimum credit score requirements. If you don’t have the required credit score, lenders may not give you a loan. For those with good credit scores, Auto Approve can quickly introduce you to competitive loan rates. If you don’t have the best score, improving your credit will save you money on any loan. Credit scores dictate interest rates, and a higher credit score makes your loan more affordable. An extra percentage point on interest can add thousands of dollars to your loan. Some borrowers feel the impact right away, owing over $100 extra per month because of a low credit score. 

Trade-In Value of Your Current Car

Some aspiring car buyers want to replace their current vehicles. Your old ride still has value, and those proceeds will make the new car more affordable. Your car’s trade-in value will increase your equity in the new car and result in lower monthly loan payments. Most buyers use their monthly budget to calculate how much car they can afford. Making a higher down payment now frees up more of your budget.

Car Loan Interest, Monthly Payments, and Down Payments

A higher interest rate will increase your monthly payments. You can get around high-interest rates by shopping around, improving your credit score, and making a higher down payment. If you got a high rate initially and want to lower your monthly payment or find a better rate, Auto Approve makes it easy to shop around for your best options for car and motorcycle refinancing. You can find optimal loans based on your current credit score and income. Raising these numbers will help you qualify for better loans. 

You can get around high monthly payments by accumulating more funds for a down payment. The down payment represents an interest-free investment into your vehicle. Putting 20% down only requires financing for 80% of the car’s value. Some people put more than 20% into their car or make a cash offer. You’ll need more capital for this strategy, but the extra space in your monthly budget is rewarding. 

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Get a quote to refinance your auto loan in minutes with no credit check. See how much you can save with historically Low Rates! Skip Up To 3 Payments. A+ Rating From BBB.

New vs. Used Cars

The worst day of a car’s life is when you drive away from the dealership. At that moment, the vehicle automatically loses a chunk of its value since it’s no longer a new car. New cars are more expensive than used cars and add more financial stress. These vehicles come right out of the shop and are far less likely to have structural issues. You can find a used car that functions adequately, but some used cars have structural problems that can get costly. In addition, some used cars become more expensive than new cars because of mechanical repairs. 

The horror stories about used cars don’t paint an accurate picture of the used car market. If you find a suitable used car, you can save a lot of money on your purchase. A simple car inspection can reveal any problems. If the car passes the inspection, it’s like buying a new car. You should consider how often you’ll use the car and rack up miles. Someone who drives less often may opt for a used car with over 50,000 miles. These cars have more wear and tear, but the mileage won’t matter as much if you don’t drive them as often. 

You can also select affordable and durable car models. A used BMW will cost more than a used Toyota. The mileage you get out of your car also impacts costs. Getting 300,000 miles out of a vehicle instead of 100,000 gives you more for your money. Frequent and proper maintenance can stretch your car’s lifespan, resulting in fewer car purchases in your lifetime. 

Other Expenses That Can Affect What Car You Can Afford

Auto loans aren’t the only expense for car owners. You’ll have to incur these costs for your car as well.

  • Fuel Costs: Gas prices are rising, but you still need to fill up the tank. You should calculate your monthly mileage and how much you pay for gas. Choosing a fuel-efficient engine and limiting your usage can help you save on gas.
  • Car Insurance Monthly or Annual Payments: Your car needs insurance, and most people pay a little over $1,600 per year for their policies. A luxury car will require a more expensive insurance policy, and some used car policies cost more than insurance for new cars. The savings on the purchase still justify used cars in most cases.
  • Vehicle Maintenance and Repairs: Your car will need some maintenance to increase its longevity. You may also get into an accident and need to repair parts of your vehicle. While it’s possible to fit maintenance into your budget, repairs can be less predictable.
  • Registration and driver’s license fees: These fees won’t add much to your overall expenses. The driver’s license fee is a one-time charge unless you have to make any changes. Registration costs less than $100 per year for most vehicles. Although these fees are small, car buyers with tight budgets may feel the impact.
  • Parking Fees: You will have to pay to park in some locations. These fees add up, but they apply to any vehicle. It doesn’t matter if you buy a new luxury car or opt for an old car with 100,000 miles. You still have to pay these fees, and they can add up. Parking further away from venues can help you get more affordable parking. Some drivers stay away from locations that have parking fees.

Should You Pay Upfront or Finance a Car?

Paying upfront saves you more money in the long run. You won’t have to pay interest or try qualifying for a loan. Even with this advantage, most people finance a car. Financing makes a car more affordable by breaking the lump-sum payment into monthly payments. Some people don’t have enough funds to pay upfront, making financing their only choice. 

Paying upfront for a car also has its risks and can leave you financially vulnerable. You won’t have those funds in your savings account to cover emergency expenses. Investors can also put the money into long-term investments that provide dividends and outpace the loan’s interest rate. For most people, financing is the better way to buy a car.

Consider Refinancing Your Current Car to Save for a Down Payment

Saving money for a down payment will make your car more affordable. Your down payment represents the interest-free money that goes into your car’s equity. You can save money through various strategies, such as tracking expenses and canceling some monthly subscriptions. Refinancing your current car is another great way to save for a down payment.

A refinance lowers your monthly payments in exchange for a lengthier loan term. You can save over $100 per month with a refinance and accumulate enough funds for a large deposit. You can then trade in your current car to further reduce the price of your next vehicle. Auto Approve can help you get a refinance. They connect you with their network of credit unions, banks, and finance companies to provide competitive rates. Auto Approve helps with auto and motorcycle loans. Want to save for a down payment by refinancing your car? Visit Auto Approve’s website and submit your details to get refinancing options.

Lower Your Interest Rate & Monthly Payments
Get a quote to refinance your auto loan in minutes with no credit check. See how much you can save with historically Low Rates! Skip Up To 3 Payments. A+ Rating From BBB.

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