Working out how much you should spend on a car might not be as much fun as taking a test drive or choosing your preferred paint color, but it’s central to the buying process. Whether you’re a cash buyer or use car financing, it’s important not to overstretch yourself and let your dream car become a financial nightmare.
In April 2026 JD Power reported that the average monthly auto payment is now more than $800*, while nearly one in five borrowers are paying more than $1,000 per month. With rising costs across the board, paying the right price can matter as much as getting the right car.
In this article we’ll run through our top tips to help you budget for your next car. At a glance, here’s what you need to think about:
| Question | Short answer |
|---|---|
| How much of my income should go to a car? | The 20/4/10 rule caps total transportation costs at 10% of gross monthly income |
| What is the 20/4/10 rule? | 20% down, loan term of 4 years or less, total ownership costs under 10% of gross monthly income |
| What costs beyond the purchase price should I budget for? | Sales tax, registration, insurance, fuel, maintenance, and depreciation |
| What APR will my credit score get me? | Ranges from ~5% (excellent credit) to 16%+ (deep subprime) as of Q4 2025 |
How Much Should You Spend on a Car?
- How do I set a budget for buying a car?
- What is the true total cost of buying a car?
- What is the 20/4/10 rule for car buying?
- How does my credit score affect how much I can spend on a car?
- How much should you spend on a car FAQs
- What’s the bottom line on car affordability?
How do I set a budget for buying a car?
When it comes to setting a budget for your next car, there are some proven approaches worth considering.
First, you might prefer to build your budget around industry standards. General best-practice advice varies, but most pin the amount for monthly car costs at somewhere around 10% of your monthly take-home pay, to allow for all the other expenses you’re likely to have.
Another approach is to look at your existing spending to determine how much you can afford. It could end up being more or less than that 10% and that’s fine, depending on your other living costs. Keep in mind that this option tends to work only for those who already have a strong grasp on their personal finances. If that describes you, you may be able to create a harmonious budget that accommodates your needs and wants. For instance, if you want a nicer car, accept that you may need to cut costs elsewhere to afford it. Budgeting is, after all, a balancing act.
What is the true total cost of buying a car?
The true cost of buying a car is about much more than just the sticker price. In fact it’s just the starting point, because there are lots of other factors that determine what you’ll spend overall.
In most cases there are sales taxes, registration fees, destination charges, and financing charges that get added on top. Any existing debt must be factored in as well. These costs are sometimes rolled into the price quoted by a salesperson—but not always.
Also, a car is not a one-time expense. You’ll need an ongoing line in your budget to account for maintenance costs, gas, car insurance, any repairs not covered by the factory warranty, and other costs, in addition to loan payments. Think about all of these items before you set your purchase price; this might require you to shop for a less-expensive model than you initially thought you could afford. After all, what good is a new car if you can’t afford to put gas in it?
Looking further ahead, you may also want to consider anticipated depreciation. This can’t be estimated exactly, but it will impact trade-in value when it’s time to purchase your next car. An expensive car can still depreciate fast, so don’t expect the purchase price to determine future value—especially with current volatile car prices.
Here’s a full breakdown of the total costs involved in buying a car:
| Cost category | One-time or ongoing? | Notes |
|---|---|---|
| Purchase price / down payment | One-time | Starting point; doesn’t reflect true cost |
| Sales tax & registration | One-time | State sales tax ranges from 0% to ~8%+, plus local taxes; five states charge none |
| Destination & dealer fees | One-time | Destination is set by manufacturer; some dealer fees are negotiable |
| Monthly loan payment | Ongoing | Determined by price, APR, and term |
| Auto insurance | Ongoing | Varies significantly by driver, vehicle, and location |
| Fuel | Ongoing | Factor in MPG and local gas prices |
| Routine maintenance | Ongoing | Budget roughly several hundred to ~$1,000/year, rising with age |
| Repairs | Ongoing | Higher risk on older/higher-mileage vehicles; major repairs often begin around year 7–8 |
| Depreciation | Long-term | Affects resale/trade-in value; steepest in the first few years |
What is the 20/4/10 rule for car buying?
The 20/4/10 rule is a car-buying guideline recommending a 20% down payment, a loan term of four years or less, and total monthly vehicle costs — including the loan payment, insurance, fuel, and maintenance — that don’t exceed 10% of your gross monthly income.
Although some definitions use take-home pay as a reference, major sources such as Chase, JD Power, and LendingTree use gross income so we’d consider that the primary definition.
If you plan to finance your new car, whether at the dealership or through an outside bank, online lender, or credit union, “20/4/10” can be a useful rule of thumb. There are, however, some key pros and cons to consider:
Pros
- Keeps debt under control: A larger down payment and shorter loan term reduce borrowing and interest costs
- Reduces depreciation risk: Helps prevent you owing more than the car is worth as it loses value
- Encourages sensible budgeting: Caps car costs at 10% of income, leaving room for other expenses and savings
- Builds healthy financial habits: Encourages saving for a deposit and paying off the loan more quickly
Cons
- Higher upfront cost: Not everyone can afford a 20% deposit
- Fewer vehicle choices: Sticking to the rule may mean buying a cheaper or older car.
- Higher monthly repayments: A shorter loan term usually increases monthly payments
- Not suitable for everyone: Doesn't account for factors such as credit score, inflation or buyers with limited budgets
How does my credit score affect how much I can spend on a car?
If you choose to finance a vehicle, your credit score will almost certainly affect how much you have to spend. It will partially determine how high the interest rate will be on any car loan you receive, and could even decide whether you will be accepted for a car loan at all.
Car buyers with bad credit still have options. Some simple steps to maintain or improve your credit include paying your bills on time, decreasing your debt, and increasing your available income. Just remember that you can’t magically improve your credit the night before you head into a car dealership. Like a good reputation, good credit is earned over time.
CarGurus encourages all car shoppers to be conservative and careful budgeting for a car purchase. If you practice appropriate spending and budgeting habits, you’ll stand a better chance at having a successful car-buying and car-ownership experience, not to mention being able to get more for your car when it’s time to replace it.
Here's an overview of how your credit score can affect the typical interest rate you’ll pay for used car loans, using VantageScore 4.0 tiers and based on the Q1 2026 Experian State of the Automotive Finance Market report** (most recent as of mid-2026).
| Credit tier | VantageScore range | Approx. average APR — used car |
|---|---|---|
| Superprime | 781–850 | ~6.3% |
| Prime | 661–780 | ~8.8% |
| Nonprime / near prime | 601–660 | ~14.0% |
| Subprime | 501–600 | ~19.4% |
| Deep subprime | 300–500 | ~21.8% |
How much should you spend on a car FAQs
How much should I put down on a car?
It’s up to you how much you want to put down as a deposit on a car, but 20% is the benchmark. Aim for this if you want to reduce your monthly payment and avoid the risk of being “underwater” early.
How long should my car loan be?
Shorter loans mean higher monthly payments, but they carry less risk. The 20/4/10 rule of thumb suggests that four years or less is a good term. Longer (72/84-month) loans mean you accrue more total interest and are in negative equity for longer.
What credit score do I need for a good car loan rate?
The best car loan rates are reserved for those with a credit score in the Super-Prime category (a 781-850 score). A Prime rating ( 661+) will give you a good rate, but Subprime (501-600) or below means a significantly higher APR. Check out the “How does my credit score affect how much I can spend on a car?” section of this article for tips on how to improve your credit score.
Is the 10% rule realistic?
The 10% figure suggested in the 20/4/10 rule is a guideline, not a law. Rising prices and average payments above $800 per month make it hard for many buyers to hit, but if you are able to limit your total monthly vehicle costs to 10% of your gross monthly income, your overall finances will be more manageable.
Should I buy or lease if I’m on a budget?
Deciding whether to buy or lease a car if you’re on a budget is largely a case of personal preference. Leasing is likely to give you lower monthly payments but may work out more costly overall once you’ve factored in your deposit, mileage and the equity you have if you buy a car. When you plan to replace your car is another consideration, so it’s important to run the numbers carefully before making a decision.
How do I know if I’m getting a good deal on a car?
The best way to know if you’re getting a good deal on a car is research. Lots of it. It’s a good idea to check out prices and listings from a number of sources, as well as the numerous online valuation tools available. Features such as CarGurus Instant Market Value can also be very helpful when working out how a specific car ranks for value.
What’s the bottom line on car affordability?
Understanding all of the costs involved in a car purchase can help avoid a shock at the dealership and help you plan your budget. Knowing what you can afford is the first step, and every subsequent decision should be based on that. If you’re ready to start shopping, head over to CarGurus’ car-shopping page. If you’re looking for financing, our finance-in-advance page is worth a look as well.
