How Much Car Can I Afford?

Buying a car can be fun, but it’s also a big financial decision. Knowing how much you can afford is crucial.

By Brian Billings – AVP, Personal Lender | Estimated read time: 2 minutes

Before rushing to the dealership, hit the brakes and consider some basic factors that will help you make the right choice for your budget.

5 Things to Keep in Mind:

Loan payments
Debt-to-income ratio
Extra costs
Out-of-state buys
Used vehicles

Loan payments

If you need a car loan, make sure you can afford the monthly payment. Aim to keep it under 15% of your monthly income. (For example, if you earn $2,000 a month, try to pay no more than $300.)

Getting prequalified with a bank can help you estimate your monthly payment and review things like:
- Loan term: Longer terms mean lower monthly payments, but you pay more in total. Shorter terms have higher payments, but you pay less overall.
- Down payment: Paying at least 20% upfront lowers your amount owed and monthly payments.
- Interest rate: A lower rate means smaller payments.

Pro Tip:

Try our quick and easy car loan calculator to test drive the numbers. By setting up automatic payments with a Gate City Bank checking account, you could score a 1% discount, too!

Debt-to-income ratio

While working with a lender, your debt-to-income (DTI) ratio is also important. It shows how much of your income goes toward debts, like your mortgage or credit cards. The lower your DTI, the better. As a good rule of thumb, most lenders prefer it below 36%.
Extra costs

When looking at how much car you can afford, remember that costs go beyond just the sticker price. Don’t forget about registration, taxes, insurance, gas and regular maintenance.
Out-of-state buys

On a similar note, while you might find lower car prices in other states, there could be surprise expenses in the form of:
- Transportation: You may need to ship the car or travel to pick it up.
- Taxes: Different states have specific taxes and registration fees.
- Inspections: Some states want cars to pass safety or health tests, which can cost extra if the car doesn’t meet local rules.
Long story short, keep these potential costs in mind before buying a car in a different state.
Used vehicles

New cars lose value fast – about 20% as soon as you drive off the lot. Buying a used car is typically less expensive, and the value of your vehicle will depreciate more slowly. Plus, pre-owned cars often come with lower insurance rates, title fees and sales tax.

Let’s Steer You in the Right Direction.

Figuring out how much car you can afford doesn’t have to be hard. By looking at these key factors, you can find an option that fits your life and your budget.

We’re here to help you shop with confidence! Apply online, or contact one of our helpful lenders to get pre-approved today.