Aim to spend less than 10% of your take-home pay on your car payment and less than 20% on overall car expenses.
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NerdWallet suggests spending no more than 10% of your take-home pay on a car loan payment and no more than 20% for total car expenses — which also includes things like gas, insurance, repairs and maintenance.
Knowing what monthly car payment you can afford can help you calculate how much you can afford to borrow for your car loan. Use our car affordability calculator to help you set a realistic budget.
Many car buyers today are wondering – is a $300 car payment too much for my budget? With new and used car prices at record highs, monthly payments are higher than ever. This leaves some buyers with sticker shock when they see estimates from the dealer.
So how do you know if a $300 car payment fits into your budget? Here are some tips to help determine if you can realistically afford $300 a month for a car loan.
Calculate 10% of Your Take Home Pay
Financial experts often recommend limiting your car payment to 10% or less of your monthly take home pay. Here’s a quick formula to follow:
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Take your gross monthly income and subtract taxes and other deductions This gives you your take home pay,
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Multiply your take home pay by 0.10 (10%).
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The result is the maximum you should spend on a monthly car payment.
So for example, if your take home pay is $3,000 per month, 10% is $300. Based on the 10% rule, a $300 payment would be affordable.
However, don’t stop there. The 10% rule is just a general guideline. Keep reading for more ways to determine if you can truly afford a $300 car payment.
Factor in Other Vehicle Expenses
Your car payment isn’t the only expense associated with owning a car. You also need to budget for:
- Auto insurance
- Gas/fuel costs
- Routine maintenance and repairs
- Registration and taxes
- Depreciation
Experts recommend keeping your total monthly vehicle expenses, including the car payment, to 15-20% or less of your take home pay.
For example, if your take home pay is $3,000:
- Car payment: $300
- Insurance: $100
- Gas: $150
- Maintenance: $50
Your total monthly vehicle costs are $600, or 20% of your take home pay. In this case, a $300 car payment may be pushing your budget a bit. Reducing the payment would create more breathing room.
Use a Car Affordability Calculator
Online car affordability calculators are handy tools to determine a payment range you can realistically afford. They factor in details like:
- Down payment amount
- Interest rate
- Loan term
- Insurance and fuel costs
- Your income and existing expenses
Once you enter this information, the calculator provides payment estimates tailored to your financial situation. This gives you a better idea of what you can comfortably afford each month.
Aim to keep your payment in the lower end of the estimate. And be sure to get pre-approved for financing before heading to the dealer. This will give you bargaining power to resist payments outside of your budget.
Set a Total Budget Cap
As a general rule, your total monthly debt payments should stay under 36% of your gross income. This includes your mortgage or rent, minimum credit card payments, student loans, and car payment.
Make a list adding up all these payments. If a $300 car payment will put you over the 36% threshold, it’s too much for your current budget. Consider paying down other debts first to create room for a car loan.
Make a Higher Down Payment
The size of your down payment greatly impacts the monthly payment. Putting down 20% on a $20,000 car results in loan financing of only $16,000.
But with a 10% down payment, the loan amount jumps to $18,000. That increases the monthly payment significantly.
Before setting your budget, see how much you can put down while keeping some savings. A higher down payment gives you a lower monthly car payment.
Choose a Shorter Loan Term
Your loan term also influences the payment amount. A basic rule – the longer the term, the lower the payment. For example:
- A 4 year loan often has higher monthly payments
- A 6 year loan can lower the monthly cost
However, you pay more interest in total with a longer term. It’s better to choose the shortest term you can afford. You’ll save money over time by paying off the loan faster.
Weigh Future Financial Goals
A $300 car payment may fit into your current budget. But how will it impact plans down the road? Here are some questions to ask yourself:
- Will the payment prevent me from paying off credit cards or student loans?
- Will I still be able to increase my retirement contributions in the coming years?
- What about saving for a down payment on a house?
Think about your other financial priorities and how a car loan factors in. A lower payment gives you more flexibility to pursue other goals.
Consider a Used Car Instead
Some buyers only look at new cars when shopping. But used vehicles often have significantly lower monthly payments.
For example, a 3 year old car may cost $15,000 versus $25,000 for a new one. Even better, you avoid the rapid depreciation cars face in the first few years.
Run payment estimates on used cars in good condition. You may be surprised at the savings compared to a brand new car.
Try Refinancing If You Already Have a Car
If you’re currently paying $300 a month but struggling, try refinancing your loan. Many lenders let you refinance for a lower rate, especially if your credit has improved.
Refinancing can lower your interest costs and monthly payment. It’s a simple way to get a payment that better fits your budget.
The Bottom Line
At the end of the day, only you know how much vehicle payment your budget can handle. Avoid overextending yourself to drive a car outside your means.
Use the 10% rule as a starting point. Then factor in other costs like insurance and maintenance. If a $300 payment means cutting back on retirement, debt payments, or savings, it’s too much.
Set a realistic payment goal using a car affordability calculator. And consider ways to lower the payment, like a larger down payment or shorter loan term. With some planning, you can find the right vehicle payment for your financial situation.
How to determine how much car you can afford
Calculating how much car you can afford before you visit the dealership can save you hundreds, maybe thousands, of dollars in the long run.
Here are three key steps to follow:
Calculate the car payment you can afford
You may wonder, “How much car can I afford based on salary?” Instead, you’ll want to base it off your take-home pay — the amount you make each month after taxes — to get a more accurate picture of your finances.
NerdWallet recommends spending no more than 10% of your take-home pay on your monthly auto loan payment. So if your after-tax pay each month is $3,000, you could afford a $300 car payment.
Check if you can really afford the payment by depositing that amount into a savings account for a few months. Take note of what you’re giving up to do so, and determine if it works for your budget.
Be realistic about how long you can or want to be making this monthly payment. The new-car excitement will wear off in a few months; soon, youll look at that vehicle the same way you do at the one currently in your driveway. NerdWallet recommends maximum loan terms of 36 months for buying a used car and 60 months for new cars.
Taking a longer loan term will reduce your monthly payment, but over time you’ll pay much more in interest. Also, a longer loan term increases your risk of becoming upside-down on the loan, meaning you owe more than the car is worth.
How Much Car Can You Really Afford? (By Salary)
FAQ
Is $300 a lot for a car payment?
$300 monthly payment at 48 months is really inexpensive in comparison to the average new auto loan. It doesn’t sound at all extreme, but it depends entirely on your budget and goals.
How much can I afford with a $300 car payment?
We recommend you aim to spend about 10% of your take-home income on your monthly car payment. So, if you take home $3,000 each month after taxes, you might be comfortable having a vehicle with a monthly payment of around $300. However, your budget will fluctuate based on other expenses.
What is considered a high monthly car payment?
Is a $300 car payment too much on Reddit?
$300 seems… reasonable. But consider additional costs such as insurance, fuel, maintenance, and registration. Make sure you have enough savings and emergency funds if something comes up.
Can you afford a $300 monthly car payment with a $5,000 down payment?
A person making $50,000 in gross income per year could potentially afford a $300 monthly car payment with a $5,000 down payment. That still leaves over $100 per month in their budget to cover other car-related expenses and stay within the 20/4/10 rule’s guidelines.
What if my car payment is too expensive?
Consider the following options to take if your vehicle payment is too expensive. Refinance your loan: Refinancing your vehicle loan is taking out a new loan to replace your current one, but with rates and terms that better fit your budget. It’s smart to calculate potential savings ahead of time to find one that best suits your needs.
How much a down payment should you put on a car?
An appropriate down payment can significantly reduce your loan amount and monthly payments, making your car purchase more affordable. Financial experts recommend a down payment of 10-20% of the total car price. Trading in an existing vehicle can also help lower your loan amount by reducing the overall cost of the new car.
How much car can you afford?
To determine how much car you can afford, financial experts recommend keeping your total monthly car payment at 10% or less of your gross monthly income, spending no more than 15% to 20% of your take-home pay on car expenses, and ensuring that total vehicle costs, including loan payments and insurance, don’t exceed 20% of your monthly income.
Should you buy a new car with a larger down payment?
Longer terms mean a lower monthly payment (but more interest paid over time). If you plan on trading in your old vehicle, include it as a down payment. A larger down payment offsets your monthly payment. According to most recent Edmunds data, the average down payment for a new vehicle was about 15 percent of the purchase price.
How much should a car loan payment be?
If you are trying to avoid monthly payments in the thousands and want a better grasp on your finances this year, consider how your auto loan payment fits into your budget. According to Karen Bennett, senior consumer banking reporter at Bankrate, your vehicle monthly payment should not exceed 10 to 15 percent of your pre-tax take-home salary.