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How Much Should My Car Payment Be?
Aim to spend no more than 10% of your monthly take-home pay on a car payment, but you may have flexibility.
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Updated · 2 min read
How is this page expert verified?
NerdWallet's content is fact-checked for accuracy, timeliness and
relevance. It undergoes a thorough review process involving writers and
editors to ensure the information is as clear and complete as possible.
Shannon Bradley is a NerdWallet authority on autos and home services. Before joining NerdWallet in 2021, Shannon spent 30-plus years as a writer, content manager and marketer in the financial services industry. In these roles, she developed financial expertise and created educational content covering a wide range of personal and business topics. Shannon is based in Newburgh, Indiana.
Julie Myhre-Nunes leads the Auto Loans, Student Loans and Home Services teams at NerdWallet. Julie has over a decade of experience in personal finance. Before joining NerdWallet, she led editorial teams at Red Ventures and several startups. Her personal finance insights have been featured in Forbes, The Boston Globe and CNBC, while her writing has appeared in USA Today, Business Insider, Wired Insights and more.
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Financial experts recommend spending no more than 10% of your monthly take-home pay on your car payment and no more than 15% to 20% on total car costs such as gas, insurance and maintenance as well as the payment.
If that leaves you feeling you can afford only a beat-up jalopy, don’t despair. You can gain flexibility with your car payment using a balanced budget approach. Here’s how it works.
Before you hit the dealership or start car shopping online, take time to determine the maximum car payment for your budget.
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NerdWallet recommends using the 50/30/20 rule when setting your overall budget. To do this, divide your take-home pay into three general spending categories:
50% for needs such as housing, food and transportation — which, in this case, is your monthly car payment and related auto expenses.
30% for wants such as entertainment, travel and other nonessential items.
20% for savings, paying off credit cards and meeting long-range financial goals.
A monthly auto loan payment typically falls into the “needs” category. If you’re buying a car, it’s most likely essential for getting to a job or taking the kids to school.
However, the balanced budget approach can provide flexibility. For example, if you split housing costs with a roommate, you could have a higher percentage available for a car payment in the “needs” category. Or, if you want a more expensive car, you could consider part of your monthly payment as spending in the “wants” category.
The key is keeping the budget balanced overall. If you plan to spend less in some areas, then you may choose to spend more than 10% of your take-home pay on a car payment.
🤓Nerdy Tip
When you know how much your car payment should be, you can back into what you can afford to spend on a car. NerdWallet’s car affordability calculator lets you start with a monthly car payment to estimate a realistic car price.
How do lenders determine a car payment?
Several factors contribute to the amount of your car payment.
The loan amount.
The length of the loan.
The annual percentage rate, or APR, which includes the interest rate and any lender fees.
Having a maximum car payment amount in mind, and sticking to it, can help when negotiating at a dealership. But beware if a dealer encourages you to go with a longer loan term to reduce your monthly car payment. Taking out a longer loan can result in paying considerably more in interest over the life of the loan. NerdWallet typically recommends loans of no more than 36 months for used cars and 60 months for new cars, though that may be more difficult in today’s market.
If you focus only on the monthly car payment and ignore total financing costs, you could waste a lot of money. For example, look at how two different loans can result in the same car payment.
Monthly payment
Loan amount
APR
Term
Total interest
$530
$22,318
6.57%
48 months
$3,122
$530
$28,804
9.75%
72 months
$9,356
The interest rate on your auto loan also affects your car payment. The rate you pay to borrow money depends on your credit score and other factors, and lower credit scores generally result in higher rates. But rates vary from lender to lender, so it’s smart to shop around to find the most competitive rate on your auto loan. It’s especially important if you need a bad credit auto loan because these loans tend to have the highest rates.
You can use NerdWallet’s auto loan calculator to compare various rates and terms.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
Best for borrowers with good or excellent credit who want fast approval and funding to buy a new car.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
4.5
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
6.74 - 15.24%
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
Best for applicants who want to compare multiple new car purchase loan offers.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
4.0
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
6.24 - 29.90%
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
Auto Credit Express
New car purchase loan
Not yet rated
Best for new-car buyers who can’t qualify for a lower-rate loan through a traditional lender and need help finding a dealer with subprime lending.
Min score: 525
Amount: $5,000 - $50,000
Min. Amount$5,000
Max. Amount$50,000
Not yet rated
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
N/A - N/A
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
Delay buying a car. If you can put off buying a car, you may be in a better place to get a car payment you can afford. In today's market of inflated car prices and payments, the average monthly new-car payment has surpassed $700, according to the vehicle affordability index provided by analytics companies Cox Automotive and Moody’s Analytics. Some car buyers are delaying their purchase, with the hope that car prices — and payments — will eventually fall.
Refinance down the road. If you have no choice but to buy a car with a high monthly payment, you may be able to refinance your car. In particular, if you have bad credit, making six to 12 months of on-time payments on your loan may help you to refinance to a lower rate and monthly payment later.
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