How much can you afford to spend on a car?

How much you should spend on a car doesn't have a one-size-fits-all answer. Even looking at what's in the bank isn't always enough.

"You're committing to a long-term financial agreement," says Patrick Roosenberg, senior director of automotive finance intelligence at J.D. Power. "You have to ask yourself, 'How am I doing right now?' But you also need to project your needs and income for the next four, five or even six years."

If you're taking out an auto loan, it's essential to figure out your maximum monthly payment.

"That number should be a ceiling, not a goal," Roosenberg said. "Look for the cheapest car that checks all your boxes."

There are several schools of thought about how to calculate your optimal sticker price. The approach that's right for you depends on a variety of factors, including your risk tolerance, financial safety net and vehicle needs.

Roosenberg's rule

According to Roosenberg, your car payment and other vehicle expenses shouldn't exceed 20% of your monthly income after taxes.

The median household income was $83,730 in 2024, according to the U.S. Census Bureau, or approximately $72,330 after taxes.

Using Roosenberg's formula, someone earning that much could afford to spend up to about $1,200 a month on vehicle expenses. If you assume $575 a month for insurance, gas, maintenance and other non-loan costs, that leaves about $625 a month for car payments.

If they put 10% down and were approved for a loan with a 5% interest rate and a 72-month term, they could afford a car that costs around $43,000.

That might be a tall order, since the median car payment on a new vehicle is about $766, according to Edmunds. For a used car, though, it's closer to $500.

The 20/4/10 rule

Another method is the "20/4/10 rule," which requires putting 20% down on a 4-year loan and spending no more than 10% of your gross monthly income on all vehicle expenses, including loan payments, insurance, fuel, maintenance and any registration fees. 

So, if you're interested in a $50,000 car, you'd put down $10,000 and take out a $40,000 loan. At 5% interest, your monthly payment on a 4-year loan would be about $921.

Assuming $575 in monthly expenses, your gross income would need to be just over $179,000 to stay within the 10% limit.

Some experts argue the 20/4/10 rule is outdated, given how many people are opting for longer terms. In 2025, less than 6% of car loans were for 48 months, compared to 36% for 72 months.

The 35% rule

The 35% rule is a guideline suggesting that the total value of the car you purchase should not exceed 35% of your annual gross income. So, if you earn $83,730 a year before taxes, the total price of the car you buy should be no more than $29,305. 

This is a more conservative estimate designed to leave you more money for savings, investments and other debts.

Car affordability calculator

If you're looking to estimate monthly car payments, CNBC Make It's loan calculator can help. Don't forget to subtract your down payment from the list price.

While financing with the dealership will save you time, it tends to have the highest interest rates. Shop around and compare rates from multiple lenders.

One of our top picks is Capital One, which boasts competitive rates and minimal fees, as well as rate reductions for qualified existing Capital One customers. The online Auto Navigator tool allows you to adjust your down payment, trade-in and loan terms and shop for used and new cars from among hundreds of participating dealerships.

We also like PenFed Credit Union, known for its low rates and flexible terms. You can prequalify without a hard credit check and joining PenFed only requires a $5 deposit in a qualifying deposit account.

If your credit doesn't sparkle, MyAutoloan can find financing for borrowers with scores as low as 600. (You can also apply with a co-signer.)

Just fill out a short form and the online marketplace will match you with up to four prequalified loan offers.

The car-buying process is nuanced and highly dependent on your needs, your financial situation and the terms of your loan.

1. Improve your credit score

Your credit score isn't the only factor that determines the interest rate you'll be offered, but it is the biggest. If your credit isn't great and you can afford to wait, take a few months to boost your score. Making on-time payments in full and reducing the amount of available credit you use can lead to swift and significant improvements.

2. Make a bigger down payment

Speaking of waiting, consider holding off on buying a car until you can make a significant down payment. The more you put down, the less you'll have to pay in interest over the life of your loan.

Conventional wisdom used to be that you should put 20% down on a new car and 10% down on a used one. That's changed a lot as vehicle prices have continued to rise. In the third quarter of 2025, the average down payment on a new automobile was about 13%, according to Edmunds.

3. Be ready to negotiate

One of the biggest mistakes consumers make, according to Roosenberg, is showing their hand too soon.

"You don't want to go into the dealership and say, 'Well, I can do $400 a month,'" he said. "Know what your budget is and then try to negotiate. Hopefully, you can get it within your range."

We work with experts who have specialized knowledge and authority, based on relevant training and experience. For this story, we interviewed Patrick Roosenberg, senior director of automotive finance intelligence at J.D. Power. Patrick has spent more than 25 years in automotive financing, studying dealer-lender and consumer-lender relationships.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice to help them make informed financial decisions. Every auto loan guide is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of loan products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.