How Much Income Do You Need to Buy a Car?

How Much Income Do I Need to Buy a Car?

To figure out how much income you may need to buy a car and keep the purchase within your means, you can follow the 20/4/10 rule. This means:

• Making a down payment of at least 20% of the car's purchase price.
• Choosing a loan term of four years or less to limit the interest charges.
• Restricting transportation costs to no more than 10% to 15% of your monthly income.

The table below provides examples of the monthly payment amount you should be able to afford if it accounted for 10% of your net monthly income. Estimates were computed using the ADP Salary Paycheck Calculator, which subtracts federal income, Social Security and Medicare taxes from the gross income.

Aside from paying for the car itself, remember that you'll need to tack on expenses like the vehicle title, license plates, vehicle registration and dealership fees. Keep in mind that some of these costs, such as sales tax and title fees, are one-time expenses, but others like vehicle registration are ongoing.

To estimate how much your car payment might be, use Experian's car payment calculator.

With this calculator, you can figure out an estimated monthly payment based on factors such as the vehicle's cost, the length of the loan, the loan's interest rate and the sales tax rate, along with the value of any vehicle you're trading in.

Plugging in those numbers will provide estimates of the:

• Monthly payment amount
• Total number of payments
• Loan payoff date
• Total interest paid
• Total amount paid
• Percentage of payment that will go toward the principal
• Percentage of payment that will go toward interest

Car payment calculator

What Is the Total Cost of Owning a Car?

Assuming you drive 15,000 miles a year, the average costs of owning and operating a car totaled $8,541 in 2024, according to the U.S. Bureau of Transportation Statistics. These costs include:

• Loan payments
• Taxes, registration and fees
• Fuel
• Maintenance and repairs
• Car insurance
• Depreciation of car's value

Learn more: What Is Depreciation?

How to Save Money on Buying a Car

Here are nine tips for saving money on buying a car.

1. Shop Around

Compare prices at several dealerships to find the best deal. Perhaps spend a day visiting various dealerships to compare vehicle options, prices, customer service and other factors. In addition, comb the internet to see if you might be able to score a good deal from an online seller.

2. Select the Best Time

Generally, the end of the month, quarter or year are the best times to buy a car. Why? Because that's when salespeople typically are rushing to meet sales goals, meaning they might be motivated to cut a deal.

3. Negotiate the Trade-In Offer

If you're trading in a car, maybe you can persuade the dealership to assign a higher trade-in value in order to lower the price tag. Before you negotiate the offer, look up the current value of your car. This should give you some leverage in settling on a fair amount for your trade-in.

4. Skip Costly Add-Ons

A salesperson might suggest you buy add-ons like window tinting, chrome-plated wheels, wheel locks or an alarm system. If you want these add-ons, try negotiating the prices. But if you don't want recommended add-ons, resist caving in to pressure to buy them.

5. Consider the Features

Maybe you're itching to buy a car that includes a top-of-the-line sound system. Or perhaps you're eyeing a car equipped with heated seats. These and other features almost certainly will add to the price of the car, so you might look at skipping pricey features to make your car more affordable.

6. Make a Down Payment

A down payment generally reduces your monthly car payments. So, the more you set aside in savings for the down payment, the lower your monthly loan payments should be. To stash cash for a down payment, automatically transfer money into a savings account that's earmarked just for that purpose.

7. Boost Your Credit Score

If you plan to finance your car purchase, you might stand a better chance of gaining a low interest rate with a higher credit score. A lower interest rate will save money over the long run. To bump up your credit score, reduce your credit card balances and always make on-time credit card payments, among other moves.

Learn more: How to Improve Your Credit Score

8. Compare Loan Offers

Look around to see which lenders offer the most attractive interest rates on car loans. Don't simply pick the first offer you come across. Start with banks or credit unions where you already do business.

9. Weigh the Make and Model

Certain cars might be more expensive to insure than others. Compare insurance quotes for cars that are on your wish list, and perhaps pick a car that'll be less costly to insure.

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The Bottom Line

Buying a new or used car could be one of the biggest purchases you ever make. So, before you go car shopping or take a test drive, do your research. Ask yourself how much car you can afford, what your estimated transportation costs would be and how you can save money on the purchase. Also, if you're planning to take out a car loan, check your free credit report from Experian to see whether there's room for improving your chances of scoring a lower interest rate.