The right car budget depends on your take-home pay, your other bills and how long you borrow for. Two simple rules give a sensible starting point. Enter your own numbers in the calculator, or see the examples below.
Rule 1: spend 10–15% of take-home pay on the car payment
Many advisers suggest keeping the monthly car payment at around 10% of what you take home, and no more than 15%. That leaves room for insurance, fuel and servicing.
Rule 2: the 20/4/10 rule
A stricter rule: put down at least 20%, borrow for no more than 4 years, and keep all car costs (payment, insurance and fuel) under 10% of your gross monthly income.
Examples by salary
| Yearly salary | Take-home per month (approx.) | 10% payment → loan | 15% payment → loan |
|---|---|---|---|
| £30,000 (UK) | £2,000 | £200 → £8,350 | £300 → £12,530 |
| $50,000 (US) | $3,300 | $330 → $16,670 | $495 → $25,000 |
| ₹10 lakh (India) | ₹78,000 | ₹7,800 → ₹3.76 lakh | ₹11,700 → ₹5.64 lakh |
Loans assume 7% over 4 years (UK), 7% over 5 years (US) and 9% over 5 years (India). Take-home pay is a rough estimate; use your own payslip.
Add your down payment and any trade-in value to the loan amount to get the car price you can afford.
Don’t forget running costs
Insurance, fuel or charging, servicing, tyres and road tax can add a lot to the monthly payment. Check the full picture with the total cost of ownership calculator and the fuel cost calculator.
Ways to afford a better car
- Save a bigger deposit so you borrow less.
- Consider a car that is 2–3 years old; much of the value loss has already happened. See the depreciation calculator.
- Compare lease and buy if you change cars often: lease vs buy explained.
Frequently asked questions
What percentage of my income should go on a car?
A common guide is a car payment of about 10% of take-home pay, and total car costs under 15–20%.
Is a 6- or 7-year car loan a good idea?
It lowers the payment but raises the total interest, and you may owe more than the car is worth for several years. If you need a very long loan to afford the payment, a cheaper car is usually the safer choice.
Does a bigger down payment help?
Yes. You borrow less, pay less interest and are less likely to owe more than the car is worth.
Related: Car affordability calculator · Car loan calculator · How loan EMI is calculated