How we figure what you can afford
We add up everything the car costs each month, the loan payment plus insurance, gas and upkeep, and keep that total at or under 15% of your
We add up everything the car costs each month, the loan payment plus insurance, gas and upkeep, and keep that total at or under 15% of your take-home pay for a comfortable price. The stretch price goes to 20%. Above that, a car usually starts squeezing savings and other bills.
From the payment that fits, we work backward to the loan amount using your rate and loan length, then add your down payment and trade-in and take out sales tax to get the out-the-door price. Dealer fees, title and registration come out of that same price, so ask for the total before you agree.
The 20/4/10 rule
A common rule of thumb is to put 20% down, borrow for no more than 4 years, and keep total car costs under 10% of your gross income. It's strict on purpose: a shorter loan means less interest and less chance of owing more than the car is worth. If you need a longer loan to make the payment work, it's a sign to look at a cheaper car.
Watch out for long loans
Stretching to 72 or 84 months lowers the payment but raises the total interest, and cars lose value fast. You can end up owing more than the car is worth for years, which is a problem if it's totaled or you need to sell.