How Much Car Can You Really Afford?
By: Brian O'Connell

This is not another article on Cash for Clunkers – but it is designed to help you figure out how much car you can actually afford, if you decide to opt for a new car over your old clunker. The formula is an easy one, and useful to know before you walk into a dealership.

Make no mistake, knowing how much you can spend on a car is not a luxury – it’s a necessity. You can get in big trouble if your financial aim is off the mark. According to, almost a quarter of Americans (24.3%) are upside-down on their auto loans, with an average of $4,442 in negative equity.

The first step in figuring out how much car you can afford is getting a target price, and then using the sbup auto loan calculator to estimate principal, interest and monthly payments on the loan.

For example, let’s say you want to pay under $300 per month for your car payment over 48 months. Using the sbup calculator, a $20,000 new car on a loan with 9% interest, 6% sales tax, $4,000 down and a $5,000 trade-in would get you a monthly payment of under $300 - $297.13, to be exact.

Of course, every consumer has his or her own wants, needs and financial resources. But the calculator should accommodate your personal financial situation – and give you a good idea of how much you can afford to pay for your shiny new wheels.

Here are some other considerations you might consider before hitting the dealerships:

Cover overall costs. The price of a new car isn’t the same as the cost of a new car. While you need to factor in the price of your car or truck, you’ll also need to add in “extras” like insurance, registration, gasoline and maintenance.

Down payment.
It’s not rocket science, but the more cash you put down on your vehicle, the lower your monthly payments. But in the rush to buy that sweet new convertible, consumers often come up short with a down payment. Best bet: aim for at least a 20% down payment on a new car. If you can’t come up with the money, it’s better to wait and save until you do have money. After all, there’s always another convertible rolling down the pike.

Trade-In. Don’t forget to add the trade-in value of your old car (if you have one) into your new car budget. The sbup Auto Loan Calculator factors in the value of a trade-in – and it’s significant.

For example, in the example listed above, a $5,000 trade-in on that $20,000 car is a big help in getting that monthly payment down to $297. Without it – assuming no trade-in at all – that same monthly payment rises to $429.02. Before you bring your old car to the dealer for an assessment, make any needed repairs and clean the vehicle inside and out. New tires can really jack up the value of your old car. Sure, it may cost a few hundred dollars, but such improvements can mean much more cash back on the trade-in value.

Figuring out how much car you can afford isn’t difficult, but it is necessary. Remember those 25% of U.S. consumers with car loans already underwater?

That’s one club you don't want to join.

—For more ways to save, spend, invest and borrow, visit

Sign Up Now for Our FREE Newsletter

Brokerage Partners

Search for Rates

US Rate Map - National Auto Loan Rates

Roll over states to see best rates.
Lower Rates Higher Rates

This illustration shows rates based on all terms and locations of a particular state. Products may not be offered by all institutions. Individual institutions determine the availability and required qualifications of their products. Product restrictions may apply.


Calculator Access our Savings, Mortgage, Auto Loan and Personal Finance Tools here.