How Much Should You Spend on a Car?

You should spend an amount on a car that comfortably fits your monthly budget and long-term financial goals. Most experts recommend keeping your monthly car payment around 10% of your take-home income, and your total monthly car expenses under 15–20%. This ensures you have enough left for essentials like rent, groceries, savings, and emergencies.

For example, if you bring home $3,000 a month, your car payment should ideally be no more than $300. You’ll also need to budget for insurance, gas, maintenance, and registration costs. If you’re in Illinois, be sure to factor in local taxes, fees, and regional insurance rates. 

For help calculating what fits your budget, call Insure on the Spot at 773-202-5060 — we can help you align your insurance costs with your car spending plan.

What Percentage of My Income Should Go Toward a Car?

A good rule of thumb is to limit car costs to 10–15% of your monthly take-home pay. That includes your auto loan payment, insurance, gas, and maintenance.

Popular Guidelines:

• 10% Rule: Cap your car payment at 10% of net income.
  
• 20/4/10 Rule: Put down 20%, finance for 4 years or less, and keep total vehicle expenses (payment + insurance + fuel + maintenance) under 10% of your gross income.
  
• 50% of Annual Income: Dave Ramsey suggests never owning vehicles worth more than 50% of your yearly income.
  

Here’s a quick reference based on different income levels:

Note: This assumes no major debts and a 60-month term. If you go shorter, your budgeted car price should be lower.

How Can I Calculate How Much Car I Can Afford?

Here’s a simple step-by-step breakdown:

1. Start With Your Income: Know your monthly take-home pay.
   
2. Apply the 10% Rule: Multiply your income by 10% to get your target monthly payment.
   
3. Subtract Insurance: Estimate your monthly insurance cost. A $100 insurance premium means you now have $200 left for a loan payment if your car budget is $300/month.
   
4. Factor in Fuel and Maintenance: Budget another $100–$150/month for gas and maintenance (more if you drive a lot).
   
5. Account for Registration & Taxes: These vary, but in Illinois, registration alone is $151/year.
   
6. Use a Loan Calculator: Input your affordable payment, down payment, and desired loan term to find your max vehicle price.
   
7. Add a Safety Margin: Shop $1,000–$3,000 below your calculated max to leave room for unexpected expenses.
   

If you’re unsure about your insurance costs for a specific model, Insure on the Spot can provide a fast quote to include in your budget.

What Costs Should I Include When Budgeting for a Car?

Car ownership goes beyond the monthly payment. You should budget for:

1. Car Insurance

• Required by law
  
• Average annual premium for full coverage: ~$1,500–$1,800
  
• Varies based on age, driving history, and car type
  

Tip: Older, modest cars are cheaper to insure. A $10,000 Toyota may cost half the insurance of a $40,000 luxury SUV.

2. Fuel

• Budget ~$100–$200/month, depending on mileage and MPG
  
• Gas prices in Illinois can fluctuate above the national average
  

3. Maintenance & Repairs

• AAA estimates ~$125/month on average
  
• Save monthly toward a repair fund (especially with used cars)
  

4. Registration & Taxes

• Illinois registration: $151/year
  
• Sales tax: 6.25% in Illinois, potentially more with local taxes
  

5. Parking & Tolls (Optional)

• City residents may pay $100+/month for parking
  
• Budget tolls if you commute on toll roads
  

Is It Better to Buy a Car With Cash or Finance It?

Paying in cash is best if you can do it comfortably. It avoids interest and monthly debt.

Pros of Paying Cash:

• No loan, no interest
  
• No required full coverage (can opt for liability only)
  
• Greater peace of mind
  

Cons of Paying Cash:

• Ties up a large chunk of savings
  
• Limits you to the cars you can afford right now
  

Financing a Car:

• Allows you to spread payments over time
  
• Enables the purchase of newer or more reliable vehicles
  

Tip: If financing, keep your loan under 4 years. Avoid long-term loans that stretch payments but increase total interest costs.

What If I’m a New or Young Driver?

Young drivers should:

• Start Small: Choose a reliable used car under $15,000 (or even under $10,000).
  
• Watch Insurance Costs: Insurance for teens can exceed $400/month. Avoid sporty cars, and stay on a parent’s policy if possible.
  
• Consider Liability-Only Coverage: If the car’s worth under $5,000, skipping comp/collision might save a lot.
  
• Use the 10% Rule: If you earn $1,500/month at a part-time job, your total car expenses should be ~$150/month.
  

Insure on the Spot can help young drivers find discounts (student grades, telematics programs) and cheap car insurance in Illinois.

What If I Need SR-22 Insurance?

Needing SR-22 filing means higher insurance premiums, and that affects your overall car affordability.

Here’s how to manage it:

• Expect Higher Insurance: Premiums may double or triple. Budget accordingly and reduce your car price target.
  
• Go Smaller on the Car: A $5,000–$10,000 car may be more practical until your SR-22 period ends.
  
• Avoid Financing If Possible: Keeping your budget flexible is crucial. Focus on fulfilling SR-22 requirements consistently.
  
• Consider Non-Owner SR-22 Insurance: If you don’t need to drive daily, this option provides coverage at a lower cost while fulfilling state requirements.
  

Insure on the Spot specializes in SR-22 filings for Illinois drivers and can help you keep premiums manageable during your high-risk period.

Frequently Asked Questions (FAQ)

Q: What is the average monthly car payment?
A: As of 2024, about $742 for new cars and $525 for used. Keep in mind, that’s an average — many people pay less by buying cheaper cars or putting more money down.

Q: How much of my salary should go to car expenses?
A: Ideally, no more than 10–15% of your take-home pay, including payment, insurance, gas, and maintenance.

Q: Is it bad to spend too much on a car?
A: Yes. Overspending can lead to financial stress, difficulty saving, and a bigger burden from depreciation. Cars lose thousands in value yearly — don’t let yours drain your budget.

Q: Do cheaper cars have cheaper insurance?
A: Usually, yes. Older and modestly priced vehicles typically cost less to insure, especially if you choose liability-only coverage.

Q: How long should my car loan be?
A: Keep it to 4 years or less if possible. Longer loans mean more interest and a higher chance of owing more than the car’s worth.

Need Help? Call Insure on the Spot

Car budgeting isn’t just about what you pay at the dealership — it’s about the long-term affordability of driving. At Insure on the Spot, we help Illinois drivers find coverage that fits their budget, whether it’s your first car, a car with an SR-22, or just a better deal.

Call 773-202-5060 for a fast quote or personalized advice on insurance and car affordability.