How Much Should Your Car Payment Be?

Car Payment Amount - Complete Controller

Car financing has lubricated several individuals to own a vehicle by paying monthly installments over an agreed time frame. Moreover, different financial institutions feature striking and captivating offers that spoil the clients with amazing deals resulting in indecisiveness. However, some expected benefits include low interest, fast loan processing, flexibility to choose the term, flexibility to choose the payment mode, and availability of different repayment options. But, despite all the advantages, do you ever stumble upon how much I must pay monthly in installments? ADP. Payroll – HR – Benefits Well, be at ease since we have unraveled this for you. So, read on and discover your answer!

Primarily, What is Your Budget?

There has been a long debate over how much to pay for car payments. Not everyone can afford to pay the standard 20% of their income. However, this element is determined by your budget, which involves financial priorities, needs, expenses, debts, and savings.

To simplify this situation, a chief financial analyst at proposed that car payments should not be more than 15% of your pre-tax salary if you do not have any other debt besides a mortgage.

This statement, to some extent, facilitates the problem and entails that if you are obliged with mounting debts, lower than 15% will favor you. But how do you identify the exact figure? Let’s find out.

How Much Do You Earn?

Your monthly income is the central unit in figuring out the affordability in this aspect. For instance, the average salary in the U. S as reported by the world data, is $5,783 per month. Now, if we apply the 50-30-20 rule here, 50% for the needs, 30% for wants, and 20% for savings, car payment falls in the category of conditions, so if you decide to purchase a new car rather than use one, according to Kelly Blue Book, at the end of 2021, a new car costs around $47,000. Excluding the down payment, interest rate, sales tax, and automotive expenses, your car payment based on 48 months would be $979. However, this is just a rough idea; if you add the factors above, it will make up less than 10% of your pre-tax income. We gave you an idea to determine since it depends on your income. Download A Free Financial Toolkit

But Other Factors Influence this Decision

Credit score: An imperative factor that determines your eligibility for the loan. Moreover, the better the credit score, the lower the interest rate, and vice versa.

Loan tenure: Your monthly payment is calculated based on your chosen time frame; it could be from 15-80 months. Now, if you can clear off the debt in a short period, your monthly payment would be higher with a lower interest rate; however, in a long-time frame, installments are reduced, but interest rates boost over time.

Are There Other Components that Affect Monthly Car Payments?

Yes, the following are the additional and essential factors.

Existing debt

For instance, you borrow funds from a financial institution or use credit cards to finance your business or education. In this situation, you may have to trim your car budget since these existing debts consume a significant portion of your income.

Additional automotive expenses

One common mistake that individuals commit while financing is to only focus on the payment and overlook the automotive expenses. But the actual figure is only determined by the totality.

Automotive costs can include:

  • Sales tax. (6%)
  • Registration fee. ($225)
  • Tag and Title fee. ($77.5)
  • Documentation fee. ($28)
  • Dealer fee. ($399)

We hope this information helps you. But do not overlook the below-mentioned factors,

Car insurance premium

It is fundamental to carry liability insurance, and many car owners apply for collision and comprehensive coverage for extra caution. Your premiums are based on. LastPass – Family or Org Password Vault

  • The car you own
  • Your age
  • Driving history
  • Location
  • Coverage options
  • The number of miles

Maintenance fees

When trying to maintain the shine and efficiency of your car, it’s imperative to consider car maintenance every month. Additionally, it doesn’t require a hefty amount but is determined by the number of miles you drive.


Conveyance is an integral part of our lives, commuting to work, dropping kids at school, going for a long drive, shopping, or a restaurant. As per the Bureau of labor statistics, the average person spends $2,094 on gas annually. In short, vehicles are our lifeline, and fuel is our oxygen.

Once you have decided on a car and found a deal that fits your financial priorities, then you can negotiate with the dealer for the price. But before visiting the dealership, ensure you have researched, shopped around the market, compared the prices, opted for lower interest rates, and determined your affordability to negotiate with a clear and focused mind. Determining how much car payment you can afford allows you to find the best deals and negotiate within the budget. Best of luck!

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