A man sits and tries to figure out how much car he can afford

What Percentage of Your Income Should You Spend on a Car?

Milad Hassibi March 5, 2019


Buying a new car can be an exciting and overwhelming time. However, one question that commonly plagues consumers is “How much should I spend on a car?” or “How much can I afford to pay for a car?”.

Here, we breakdown how consumers can find out how much car they can afford.

How Much Should You Spend on a Car?

If you are looking to purchase a new car, it’s strongly encouraged to not spend more than 10% of your total pre-tax gross monthly income. This is because consumers should not purchase a car that becomes a financial burden.

A percentage sign sits in front us a car with keys

Although 10% of your income may seem low, you will be better off from a financial standpoint by sticking to the 10% rule. As an example, if you earn $3,000 per month, your auto loan payments should not exceed $300 per month.

The 20/4/10 Rule

If you decide to finance a large purchase such as a car, you may have heard of the 20/4/10 rule. This rule does not apply to all car buyers, but serves as a good starting point to think about how much you can spend on a car loan. The rules of this are:

  • Put no less than 20% down on an auto loan
  • Finance the car for no more than four years
  • Do not let car expenses such as gas, insurance, and loan payments exceed 10% of your monthly income

If you have bad credit or tend to struggle financially, the 20/4/10 rule may not universlly apply to your circumstance. The rule is a simple suggestion for financing the purchase of a new car. Typically, consumers who earn less than average incomes may be required to spend a larger portion of their income to purchase a car.

If you are still unsure about purchasing a new car due to your income, remember to consider the costs of running a vehicle. This can include repairs and maintenance expenses which can cost hundreds if not thousands for some specific vehicles.

In order to ensure you aren’t spending thousands at the mechanics shops after your purchase, try to purchase a newer and more reliable car with lower mileage. Purchasing a car with a low income can sometimes be hard for many consumers, however, proper planning should help offset the risk.

Final Note

If you are in need of a new vehicle but have less than perfect credit, CrediReady can help. Our network of auto lenders and creditors are eager to work with you and get you into the car of your dreams! Simply fill out our free no-obligation loan inquiry form to drive off in your new vehicle today!



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