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.Table of Contents
Determining how much car you can afford is an important financial decision. With the average new car price over $47000 in 2022, it’s critical to figure out a budget that works for your income and expenses. In this article we’ll break down how to calculate an affordable car payment on a $75,000 annual salary.
Set Your Total Monthly Car Budget
As a general guideline, your total monthly car expenses – including the loan payment, insurance, gas and maintenance – should be below 20% of your monthly take-home pay.
For a $75k salary let’s assume a 25% tax rate which leaves you with roughly $56250 in take-home pay annually or $4,687 per month. Based on the 20% rule, your total monthly car budget would be around $937.
Of course, every situation is different. If you have significant non-car expenses like high rent or student loans, you’ll want to keep your car costs lower. On the other hand, if you have minimal expenses elsewhere, you may be able to stretch the budget a bit. The key is figuring out what works for your entire financial picture.
Calculate Your Monthly Car Payment
Your first step is to determine an affordable monthly car payment. As a general guideline, shoot for:
- New car payment: 10-15% of take-home pay
- Used car payment: 8-12% of take-home pay
For a take-home income of $4,687 per month, that would mean:
- New car: $468 to $703
- Used car: $375 to $562
On a $75k salary, a monthly payment budget of around $500 would allow room in your overall car budget for insurance, gas and maintenance on a new vehicle. For a used vehicle, $400 would be a good target.
Just because you’re approved for a higher payment doesn’t mean you have to spend that much. Focus on what fits your total budget rather than maximum approval amount.
Estimate Your Car Insurance
The next step is getting an estimate for car insurance. Rates vary widely based on your location, driving record, vehicle type and other factors.
To get an accurate insurance quote, provide details on the specific car you’re considering to your insurance agent or an online insurance quote tool. Shoot for allocating 7% or less of your take-home pay for insurance.
On a $4,687 monthly income, that would equal around $328 for insurance. Add that to a $500 car payment, and you’re at $828 so far.
Factor in Gas and Maintenance
Don’t overlook gas and maintenance costs when budgeting. Gas prices fluctuate but plan on spending around $150-300 per month depending on your vehicle’s MPG and driving habits.
Basic maintenance like oil changes and tire rotations typically run $200-400 annually for newer vehicles. Budgeting $50 per month should cover maintenance, with the assumption that major repairs are unlikely on a newer car within the first few years.
Add these amounts to your total – for example, $500 payment + $300 insurance + $200 gas + $50 maintenance = $1,050 total monthly car costs. This is around 22% of the sample $4,687 take-home pay, still within the 20% guideline.
Adjust Based on Your Situation
This gives you a framework, but you’ll need to tailor the details to your specific situation. Do you have an existing car to trade-in? That can lower a down payment. How’s your credit score? That impacts auto loan rates. How long is your commute? That changes your gas budget.
Run the numbers for your particular scenario. And remember, just because you’re approved for a certain amount doesn’t mean you have to spend that much. Focus on what works for your income, expenses and financial goals.
Key Takeaways
Here are a few key points when figuring out car affordability on a $75k salary:
-Aim to keep total car costs under 20% of your monthly take-home income
-For a $75k salary, total car budget would be around $937 per month
-Monthly payment should be 10-15% of take-home for new cars or 8-12% for used
-Get insurance quotes on specific vehicles to estimate costs
-Don’t overlook gas, maintenance and repairs in your budget
-Focus on what fits your total financial situation, not just maximum approval amounts
-Tailor the details for your specific location, commute, credit and other factors
Finding the sweet spot for an affordable car payment takes some upfront work. But putting in the effort can help ensure your new car purchase doesn’t wreck your budget. Test different scenarios to find the optimal balance for your income, expenses and financial goals.
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.
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 You Really Afford? (By Salary)
FAQ
How much car can I afford on a 75k salary?
| Annual Salary | Affordable Monthly Payment (based on 15% of average take-home income) | Vehicle Price (assuming 20% down and 60-month loan term) |
|---|---|---|
| $75,000 | $723.30 | $48,000 |
| $80,000 | $765.15 | $50,545 |
| $85,000 | $806.55 | $53,500 |
| $90,000 | $848.10 | $56,141 |
How much can I afford on a 75000 salary?
With a $75,000 annual salary, a 35% DTI ratio, and a 5% down payment, you can afford a home priced around $339,079. This estimate considers a 6% interest rate, a 30-year loan term, and typical property taxes and insurance.
How much should my car be if I make 80k a year?
Other experts say that a vehicle that costs roughly half of your annual take-home pay will be affordable. Then some frugal personal-finance gurus say you should spend no more than 10%-15% of your annual income on a vehicle purchase.
What car can you afford on a 70k salary?
Using an average interest rate, and a car payment calculator, you can afford a $19,000-20,000 car on a $70k salary using the 20/4/20 rule of car buying.