How Much Should Your Car Payment Be?

After a home, a car is one of the most expensive purchases people make. Whether it’s new off the lot or preowned, ensuring you have the funds to cover all the monthly expenses is critical before you get behind the wheel.

Know the Numbers

The total average cost of owning and operating a new car driven15,000 miles annually is around $11,577 or $965 per month, according to AAA’s 2025 Driving Costs analysis. While still on the higher side, it’s a $719 decrease from 2024, in part due to lower gas prices and finance charges.

You can estimate your total driving costs with the AAA Driving Costs calculator.

And while new car prices have not decreased in the past year, they are increasing at a slower rate, according to Kelly Blue Book. Still, Kelly Blue Book shows that the average price of a new car as of December 2025 was $50,000; used car prices decreased slightly at the end of 2025 to an average cost of $25,730.

Loan interest rates may drop a bit in 2026, per Experian projections. Early in the year, the average rate was 6.51% on a new car loan for those with good credit, and 9.65% for a used car.

For help finding and purchasing your next vehicle, take advantage of the AAA Auto Buying Program.

How Much Can You Afford?

Once you decide which car you want, it’s time to look at your income and other monthly expenses, including rent or mortgage, utilities and student loans. Don’t just budget for a car loan, factor in the total cost of car ownership, which includes all car-related expenses, such as gas, insurance, maintenance and personal property taxes, if you live in Connecticut or one of the other states that levy taxes on cars.

Estimates of how much you should allocate for a car payment vary, but a common recommendation is no more than 15% of your net pay every month.

“The general rule of thumb is to spend 10% to 15% of your income after taxes on a car payment, but if you cut down on the money you spend elsewhere, you might be able to swing a little bit more,” said Ted Lyons, vice president financial services for AAA Northeast.

Others are a little less cautious but suggest ensuring your car expenses don’t exceed 20% of your monthly net income, according to Patrick Roosenberg, senior director of automotive finance intelligence at J.D. Power. The shorter the term of the loan, the larger the monthly payment. While a longer term will reduce your monthly payment, you will wind up paying more interest over the term of the loan.

The 20/4/7 Rule for Car Buying

Another approach is the 20/4/7 rule, which recommends putting down 20% of the car’s price, taking out a four-year loan and ensuring the monthly payment is less than 7% of your gross income, as explained by financial planner Robbie Morris of Roots Financial Planning. The ideal car payment is what works for you and your circumstances.

Contact AAA Financial Services for information about new and used auto loans, refinancing and help buying a car. There’s even a car affordability calculator to help you estimate your auto loan rate.

Learn more about why you should consider financing outside of the dealership.

Ellen R. Delisio

Ellen is a content producer for AAA Northeast, covering automotive, finance, public affairs and electric vehicle news. She is a former newspaper reporter with experience writing for print and online publications about everything from higher education to sustainability. She recently returned to her native Long Island after living in Connecticut for 20-plus years, and has never met a beach she didn’t like.