How Much Car Can I Afford?

Deciding how much car you can afford means anticipating ownership costs and fitting all auto-related expenses into your budget.

Philip Reed | 

Aug 3, 2026 | 9 min read

Capital One

Before you even hit the car lot, you should ask yourself, "How much car can I afford?" It doesn't have to be a chore to answer: There are many online tools available today that can help you estimate ownership costs.

Budgeting for realistic car-ownership costs and estimating what you might comfortably manage can help guide you to the right vehicle type (new, used, or CPO), so you can buy with confidence.

• Evaluating more than the sticker price
• How much of your income should go toward car ownership?
• New vs. used vs. CPO vehicle budget considerations
• Signs you're buying more car than you can afford
• Practical tips to lower your total cost of car ownership

Evaluating More Than the Sticker Price

On the car lot, your eager salesperson will no doubt point to the sticker price as a way to bring you into the sales office. But that number doesn't necessarily represent the full picture. First, you may be able to negotiate a better price using rebates and incentives. Second, while you might be able to afford a down payment, you might not be able to keep up with the monthly payments and ownership costs.

According to Experian data, auto-loan payments averaged $770 per month for new cars and $531 per month for used cars in the first quarter of 2026. But it doesn't stop there. The overall average cost to own and operate a new car last year was $11,577, according to insurer AAA.

What goes into those formidable ownership expenses? Here is a partial list:

• Depreciation: This is how much value the car loses over time; a new car depreciates about 12.5% in the first year of ownership, according to vehicle-history report website Carfax. Carfax also reports that over the next four years, cars lose 5% of their value yearly.
• Finance charges: This is the money you pay in interest on your car loan.
• Fuel: The cost of gas and diesel can vary significantly. Reviewing the fuel efficiency or range of a vehicle may help you estimate how much it costs to operate your vehicle on a monthly basis.
• Maintenance and repairs: Even if a car is reliable, it will still require routine maintenance and replacement of items such as brakes, tires, and oil changes.
• Insurance: The cost to insure different vehicles can range widely. It's smart to get an insurance quote before you settle on what you want to buy.
• License, registration, and taxes: These fees are usually wrapped into the loan contract in the first year. Beginning in the third year, you will receive a renewal bill — be prepared for substantial renewal fees.

When budgeting, it's helpful to think of car ownership in terms of a "fixed-plus-variable" system. Fixed costs are those items that remain constant from month to month, such as insurance, registration, and loan payments. Variable costs can fluctuate drastically and have a big impact on your monthly budget. Examples include the price of fuel and the cost of maintenance and repair. If you make the mistake of only counting on fixed costs, you risk falling short when variable costs suddenly arise.

How Much of Your Income Should Go Toward Car Ownership?

Data from the U.S. Bureau of Labor Statistics shows that the two largest expenditures for Americans in 2024 were housing and transportation. In fact, transportation was 17% of a person's salary or $13,318. This is in line with what financial planners usually recommend — spend only 10% of your take-home pay on your car loan or 15% to 20% for all car ownership costs.

This might seem pretty restrictive, but it's just a guideline. If you place a higher priority on driving a more expensive car, and you are willing to cut back on other monthly costs, that's your decision.

Using this recommended amount, you can begin to chart out your vehicle purchase. Let's say you have a lot of savings. You can make a larger down payment to reduce the loan balance and, as a result, your monthly payment. Putting down at least 20% will also prevent you from being upside down in your car loan, which means you owe more than the car is worth. Also consider whether your income is steady. If you're in a job with fluctuating hours or commission-based pay, budget more conservatively.

Ultimately, the most practical approach is to calculate a monthly all-in cost estimate and compare it with what you can afford without dipping into your savings.

New vs. Used vs. CPO Vehicle Budget Considerations

Once you've determined the monthly payment you can afford, it's time to figure out what kind of vehicle fits your budget. This will mean choosing between a new car, a used car, or a CPO (certified pre-owned) car.

There are, of course, trade-offs to shopping in each category. For example, buying a new car is more expensive, but it typically comes with an included factory warranty. Used cars are cheaper to buy and depreciate more slowly, but they can lack the latest safety features, may be less reliable, and can require more maintenance.

Cost-wise, think of buying a CPO vehicle as the sweet spot between a new and used car.

CPO Pros:

• An extended warranty is included
• A multipoint pre-inspection report is available
• CPO vehicles are usually the cream of the crop with low mileage
• Lower financing rates than non-CPO cars might be available

CPO Cons:

• The purchase price is typically higher than for a comparable used car
• Warranty coverage terms vary and might be confusing

To summarize, with a CPO vehicle, you pay more, but you also get more. Again, it's about what works for you and your budget. One thing to keep in mind, however, is that the pre-inspection and included warranty remove a lot of doubt and lead to an easier shopping experience.

Signs You're Buying More Car Than You Can Afford

As you shop for your next car, it's easy to overlook warning signs that you are getting in over your head. Often, your wants overshadow your needs and you begin to rationalize — or ignore — a higher price.

Here are signs that you might be steering into a money pit.

• You are draining your emergency savings to make a larger down payment
• A longer loan term (60 months or more) is needed to afford the monthly payment
• You need to reduce insurance coverage to meet the monthly car payment
• You have a long commute and the car you want isn't fuel efficient
• To stay within your budget, you have to cut back on other items
• You rush into a decision to take advantage of a limited-time offer

If you feel uneasy about these or other things — or if you feel uneasy for an unknown reason — slow down and trust your intuition. There will be other limited-time offers. Making the right decision is worth the wait.

Practical Tips to Lower Your Total Cost of Car Ownership

Whether you've already chosen a car or you're still shopping, there are practical ways to reduce total costs. Making smart, proactive choices can put you in the right car at an affordable price.

1. Choose the right loan term: A longer term lowers your monthly payment but costs more in interest over time. Experts generally recommend 60-month loans for new cars and shorter terms for used cars.
2. Get insurance quotes before finalizing the deal: Premiums vary drastically by trim level, safety features, and repair costs, so find out ahead of time what you'll actually be paying.
3. Estimate maintenance and repairs, and plan ahead: Set aside a monthly amount for scheduled maintenance and a bit extra for unexpected repairs. This allows you to plan for the future by turning unpredictable costs into predictable budgeting.
4. Don’t be a monthly-payment buyer: At the car lot, negotiate based on the purchase price of the car, not the monthly payment being offered by the dealer. And before you agree to anything, get a list of the total out-of-pocket costs, including all taxes and fees.
5. Choose a vehicle that matches your needs: Only choose features you really need. For example, you can likely skip all-wheel drive if you don't live in a snowy region. And prioritize reliability and fuel economy over size and horsepower.
6. Decline unnecessary add-ons: Be prepared for high-pressure sales pitches for dealer extras such as extended warranties. Some items, such as fancy rims or theft-protection devices, can potentially be added later at a lower price.

Frequently Asked Questions

How much car can I afford based on my salary?

A good rule of thumb is to spend no more than about 10% of your take-home pay on your car payment or 15% to 20% on total car-ownership costs, including insurance, fuel, maintenance, and registration. These are guidelines rather than hard rules, but staying within them can help you avoid financial stress while still buying a car that fits your lifestyle.

What should I include in the total cost of owning a car?

The total cost of ownership includes much more than the purchase price of the vehicle. Mainly, it is made up of:

• Monthly loan payment
• Insurance
• Fuel
• Maintenance and repairs
• Registration and taxes
• Financing charges

Depreciation is also considered part of ownership, but it isn't recorded on a monthly basis. However, when you sell or trade in the car, it will have a huge effect on your overall car ownership expenses.

How can I tell if I can afford a specific car?

Estimate what the true market-value purchase price is, including rebates and incentives. Then, estimate this vehicle's total monthly ownership costs — not just the loan payment. Ask yourself if buying the car would force you to drain your emergency savings, stretch the loan term, reduce insurance coverage, or cut back on other essential expenses. If so, it's probably more car than you can comfortably afford.

How do insurance and maintenance costs impact the total cost of car ownership?

Insurance and maintenance can significantly increase your monthly ownership costs. Insurance premiums vary by vehicle, so it's smart to get quotes before buying. Planning for these costs in advance helps prevent unexpected bills from disrupting your budget.

What types of vehicles are more budget friendly?

Budget-friendly vehicles are usually used cars with lower purchase prices, good fuel economy, reasonable insurance costs, and strong reliability ratings. Used cars generally cost less to buy and depreciate more slowly, while CPO vehicles offer a balance of lower cost and added peace of mind through inspections and warranty coverage. Basically, the most affordable choice is the one that best matches your transportation needs and overall budget.

Originally published on March 5, 2018.

Philip Reed

Phil grew up fixing lawn mowers, motorcycles and cars. He began his journalism career as a night police reporter in Chicago before transitioning into providing consumer advice, authoring two popular books about car buying and leasing. The automotive site Edmunds hired him to buy and sell the company's test cars, and he later joined NerdWallet and wrote a syndicated automotive column. He recently authored the book Electric Cars: Get Rolling Today. Phil lives in Long Beach, California and still enjoys turning wrenches and helping his son change the oil in his 2016 Mazda3.