How Much Money Should You Have to Buy a Car?

Buying a car is one of the biggest purchases many people will make. With the average price of a new car around $47,000 in 2025, it’s important to figure out how much you can realistically afford before heading to the dealer. This article will discuss key factors to consider when determining how much money you should have to buy a car, including budgeting, financing, down payments, and additional costs beyond just the sale price.

Set a Budget Based on Monthly Payments

When buying a car, most experts recommend limiting your auto loan payment to no more than 10-15% of your take-home pay. This includes not just the loan payment, but also insurance, gas, and maintenance costs.

For example, if your monthly take-home pay after taxes is $4,000, you would want to limit your total monthly car costs to $400-600. This means if you get a loan payment for $300 per month, you would need to budget the remaining $100-300 for insurance, gas, repairs, etc.

Some other guidelines to consider:

• The 20/4/10 rule suggests limiting car payments to 10% of your gross monthly income and total car expenses (loan, insurance, gas) to 20%.

• Compare potential payments to what you currently pay for transportation if you have a car now Can you afford an increase, or do you need to keep payments the same?

• You can get an idea of your monthly payments by using an auto loan calculator that takes into account things like the price of the car, the down payment, the length of the loan, the interest rate, and other

Save Up a Down Payment of 10-20%

Putting money down upfront can lower your monthly payments as well as the total interest paid over the loan term Experts suggest saving up a down payment of at least 10-20% of the car’s price.

For example, on a $30,000 car, you would want to save $3,000-$6,000 for the down payment This will also show lenders you are financially responsible

If you’re unable to put 20% down, aim for at least 10%. Every little bit helps reduce payments. You can also get a shorter loan term like 3 years to compensate for a lower down payment.

Factor in Fees, Taxes and Additional Costs

When figuring out how much money you need to buy a car, you need to think about more than just the sale price:

• Sales tax – Typically 5-10% of the car’s purchase price.

• Title, registration and license fees – Can be several hundred dollars depending on your state.

• Dealer fees: Some fees, like documentation or destination fees, can be as high as $1,000. The average fee is $500.

• Auto insurance: Full coverage insurance should cost between $100 and $200 a month. Get quotes before buying.

• Gas budget – Calculate expected monthly fuel costs based on mileage. Fuel efficient cars save money.

• Maintenance budget – Budget 1-2% of the car’s value annually for routine maintenance and repairs.

Weigh the Pros and Cons of Buying vs. Leasing

Another factor to consider is whether buying or leasing makes more sense for your finances:

Pros of buying:

• You own the car and can keep it as long as you want
• No mileage limits
• Can eventually sell or trade-in the car to put toward next purchase

Pros of leasing:

• Lower monthly payments compared to buying
• Drive a newer car more often (every 3 years typically)
• Lower down payment needed (often first month’s payment)

Cons of buying:

• Higher monthly payments than leasing
• Stuck with the car after loan is paid off, even if you’re bored of it

Cons of leasing:

• Never build any equity in the car
• Strict mileage limits typically 10k-15k miles per year
• Extra fees if you damage the car and want to turn it in at lease end

Look at your budget, driving needs, and how often you plan to get a different car to decide if leasing or buying is better for your situation. Leasing works well if you want a new car every few years. Buying can make more sense if you drive a lot of miles or want the freedom to resell the car later.

Have a Prime Credit Score to Get the Best Interest Rates

Your credit score plays a big role in determining how much you’ll pay to borrow money and buy a car. The higher your credit score, the lower your interest rate will be on an auto loan. People with “prime” credit scores of 660 and above get the best rates.

Here are average new car interest rates by credit tier according to Experian in 2025:

• Prime (660-719) – 5.07% APR
• Super Prime (720+) – 3.77% APR
• Non-prime (620-659) – 8.62% APR
• Subprime (below 620) – 13.95% APR

As you can see, a prime or super prime credit score can save you thousands in interest over the life of an auto loan. Before buying a car, check your credit reports and scores so you know where you stand. If your score is lower, give yourself 6 months or more to improve it before applying for an auto loan.

Have an Emergency Fund for Unplanned Costs

Owning a car comes with surprise expenses like repairs and tickets. Make sure you have a rainy day fund established to cover unplanned costs without going into debt. Experts suggest having 3-6 months of living expenses saved in an emergency fund.

If your budget is already stretched just trying to handle the payment, insurance and gas on a car, it’s a sign you may be over-extending your finances. Try to improve your financial standing before taking on a car loan you can’t comfortably afford.

Follow the 10/20/48 Rule as an Affordability Check

Finally, a general guideline that financial experts recommend is limiting your:

• Monthly car payment to 10% of your gross monthly income
• Total monthly car costs (loan, insurance, gas) to 20% of gross income
• Loan term to 48 months or less

So for example, if you make $4,000 per month:

• Car loan payment should be under $400
• Total car costs under $800
• Loan term no more than 4 years (48 months)

This 10/20/48 rule helps account for all aspects of affordability. Following it can protect your finances from being overloaded by auto costs.

The Bottom Line

How much money you need to buy a car depends on many factors – your budget, income, debts, credit score, loan terms, and more. While rules of thumb like 10/20/48 exist as guidelines, carefully consider your entire financial situation. Determine what affordable monthly payment makes sense for you. And be sure to factor in all additional costs like insurance, gas, maintenance and repairs.

Buying a car is exciting, but don’t let emotions cloud your judgment. Crunching the numbers upfront helps ensure your new wheels align with both your transportation needs and your budget. By setting realistic expectations for how much you can afford, you’ll stay happy with your purchase long after driving off the lot.