How much car can you afford?

Before you buy a car, consider all the costs to determine what you can afford.

When you decide to buy a car, be realistic about what it will cost you. Buying a car is a major expense, and owning a car is a major responsibility.

Be aware of all the extra expenses that come with owning a car: gas, parking, maintenance, repairs, insurance, taxes, and fees. Plus, remember that the value of your car goes down as you put more miles on it.

To make sure you’re on the right track, research, think things through, and proceed slowly through the process, step by step.

When you receive extra cash, such as receiving as a sign-on bonus with the military, or cash from a recent deployment or temporary duty (TDY), it’s not wise to use it all to buy an expensive vehicle. Consider the various purchasing options and save as much money as you can for your emergency fund.

Points to consider

Instructions: Click each point to learn more.

Your needs

Based on your situation, what type of vehicle will fill your transportation needs now and in the next few years? Will a 2-door compact do the job, or do you need a 4-door car, a 4-wheel drive, or maybe a pick-up truck? Are safety and fuel economy important to you? Options such as a sunroof, leather seats, fancy wheels, and a sound system can be great, but they can add a lot to the price of the car.

Consider value

Websites such as Kelly Blue Book (, Edmunds (, and can help you determine the value of a vehicle and/or compare models and features. Keep in mind that some features, such as sunroofs and leather seats, may add to a car’s resale value. Safety features are typically not very expensive for the potential benefits they offer, but probably won’t add much to the resale value. Talk with a loan officer to get more information about car values.

New vs. used

Remember, almost all cars depreciate (go down in value) over time. The value of a new car can drop hundreds or even thousands of dollars the day you drive it off the car dealer’s lot. You may be able to save a substantial amount by finding a used car in good mechanical condition.

Buy vs. lease

Buying a car means paying for it with cash and/or a loan. After you make all the payments, you own the vehicle and can sell or trade it. With leasing, you sign a contract and make monthly payments to have use of the car for a specific length of time and number of miles. After making all your lease payments, you return the car to the dealer. You own nothing and may even owe the dealer more money for any excess mileage or damage. However, monthly lease payments are often lower than loan payments.

Down payment

You’ll probably need some significant cash up front to acquire the car to begin with. This is known as the down payment. Have you set aside the amount you’ll need?

Loan term

If you get a car loan, you’ll have a monthly payment to the lender. Keep in mind that the longer the term of your loan (that is, the longer you have to pay the money back) the lower your monthly payment will be. But this will also mean that you’ll pay more interest over the life of the loan and will end up paying more for the car than you would with a shorter term loan. Make sure you know what your total costs will be and decide if the vehicle seems worth it to you at that price.

Your monthly budget

After you pay all of your other bills, how much money do you have available to pay the ongoing expenses of car ownership such as fuel, insurance, maintenance, registration, parking, and other expenses?
Remember, over the years that you own the car, there may be times when your income drops or you’re unemployed. Try to keep your car expenses within a range you can consistently manage through the ups and downs.


If you are deployed, you could be spending money every month on a car you can’t drive.

Note: How much and how quickly your car will depreciate (go down in value) will depend on factors including the make, model, year, where you live, and how much you drive it.

If you’re considering a car loan, see loans in the topic All About Credit.

To learn more about leasing a car, click the Next button.