SHORT ANSWER: When you’re ready to purchase your next car, calculate 10% to 15% of your take-home pay to find the payment amount you can afford.
Purchasing a new vehicle is exciting. You’ll be updating to a more modern model with new interior features, better gas mileage and perhaps the style or design you’ve always wanted. But it raises an important question before you head to the dealership: How much car can I afford based on my salary?
The average purchase price for a new car is $48,334 and for a used vehicle, it is $26,533, according to Kelly Blue Book. With $3,000 down and a 5% interest rate, that would bring your monthly payments to $855.51 per month for 60 months for the new car or $444.10 for the used car. Here’s how to calculate whether that’s affordable for you.
How Much Should I Spend on a Car if I Make $100,000?
As you ask yourself how much car can you afford, you need to do some calculations. Here’s how to evaluate the purchase price of an affordable vehicle for a person with a $100,000 annual salary.
- Check your paycheck and look at the take-home amount. For $100,000, the average take-home pay is $6,207, though your value will vary based on local taxes, whether there is another earner in your household, how much you contribute to your 401(k) and benefits expenses.
- Then calculate up to 15% of your take-home pay. For the average $100,000 earner, that’s $931.05 per month.
- Now that you know the monthly payment you can afford, you need to calculate your payment based on your unique factors. Several pieces go into this calculation:
- How much can you contribute for a down payment? Dealerships generally require no less than $1,000 but for the best financial outcomes and interest rates, putting down 20% is ideal.
- What is your interest rate on the loan? New cars tend to have lower interest rates when you finance through the dealership while used cars will have a higher interest rate.
- How many months are you comfortable financing the vehicle? The longer the financing, the more you’ll pay for the loan. For new cars, the recommendation is to choose a loan of no more than 60 months and for used no more than 36 months to avoid negative impacts from long-term loans, such as still making payments when you need a new car again or owing more than the car is worth.
- To calculate an affordable car payment, use the recommended 20% down and 60-month maximum loan term. Based on those terms, a person making $100,000 a year can afford a $61,000 car, assuming their other expenses allow for a monthly payment of approximately $931.05.
To buy a car that costs $50,000, you’ll need to make $80,000. Here’s a look at affordable monthly payments based on salary ranges.
| Annual Salary | Affordable Monthly Payment (based on 15% of average take-home income) | Money down | Vehicle Price (assuming 20% down and 60-month loan term) |
| $50,000 | $508.50 | $7,000 | $34,000 |
| $55,000 | $556.20 | $7,400 | $36,873 |
| $60,000 | $598.05 | $7,900 | $39,591 |
| $65,000 | $639.75 | $8,400 | $42,300 |
| $70,000 | $681.60 | $9,000 | $45,118 |
| $75,000 | $723.30 | $9,600 | $48,000 |
| $80,000 | $765.15 | $10,100 | $50,545 |
| $85,000 | $806.55 | $10,700 | $53,500 |
| $90,000 | $848.10 | $11,200 | $56,141 |
| $95,000 | $889.50 | $11,750 | $58,885 |
| $100,000 | $931.05 | $12,200 | $61,000 |
How Much Car Can I Afford With a 75K Salary?
When using a calculation of 15% of your take-home pay per month and 20% down at the time of purchasing, a person with a $75,000 per year salary can afford a $48,000 car. Just be sure that a monthly payment of $723 is affordable based on your existing financial commitments before completing your purchase. Consider whether you can pay the downpayment for the car on a credit card to earn rewards and cashback to make the vehicle more affordable.
Can I Afford a 40K Car if I Make 60K a Year?
A person making $60,000 per year can afford about a $40,000 car based on calculating 15% of their monthly take-home pay and a 20% down payment on the car of $7,900. However, every person’s finances are different and you might find that a car payment of approximately $600 per month is not affordable for you. Evaluate your monthly budget before completing your purchase. You want to be sure you’ve saved enough for the car to make the payments comfortable.
Affording the Car of Your Dreams Without Stressing Your Budget
If you’ve been wondering how much can you afford to pay for a car, it will depend on your finances and existing financial commitments. The general guideline says that you can afford to spend 15% of your monthly take-home pay on your car payment. For most people, that translates to a nice car with reasonable monthly payments. Just be sure to review your budget first and how much is in your savings account to commit to the down payment.
About Rebekah Brately
Rebekah Brately is an investment writer passionate about helping people learn more about how to grow their wealth. She has more than 12 years of writing experience, focused on technology, travel, family and finance. Her work has been published in Benzinga, Hearst Bay Area, FreightWaves and Dallas Observer publications.