What can you afford?

Before you buy a car, consider all the costs to determine what you can afford. Click on each point to learn more.


Which vehicle can you afford?

Key Points

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 sedan 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

Reference guides such as Kelly Blue Book and Edmunds can help you determine the value of a vehicle. Keep in mind that some optional features may add substantially to the purchase price but not increase the car’s value when it comes time to sell. Visit Web sites such as autotrader.com or vehix.com to compare models and features. 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. By buying a used car, your initial cost will therefore be less than if it were new – but checking its mechanical condition will be especially important.

Buy vs. lease

  • Buying a car means paying for it with cash and/or a loan. After you finish making 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. 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? Remember, a larger down payment will decrease your monthly payment, as well as the amount of interest you pay.

    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 – but the higher your monthly interest payments! That means you’ll 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 afford through the ups and downs.

    To learn more about leasing, click the Next button. If you're considering a car loan, read the topic Using Credit to Your Advantage to learn more.
    The challenge of car buying Compare transportation alternatives What can you afford? Leasing: benefits & Drawbacks Depreciation New vs. used Smart car shopping tips Car insurance basics Three financing options