Budgeting for Your New Vehicle


When you’re looking for a new car, calculating monthly costs is imperative to ensure you’re not committing to spend beyond your means – especially when you consider that most car financing terms are up to around five and half years, according to Edmunds.com. For even the most modest of vehicles, when you add in things like maintenance costs, gas mileage and insurance, what once seemed like an affordable option can quickly become out of range for your budget. That’s why it’s important to establish how much you can truly afford to pay for your new vehicle while you’re still in the research phase. Here are some key factors to help you determine the right price range for your budget.

How Much Car Can You Truly Afford?

The first thing you’ll need to do is sit down and crunch the numbers. All of them. This is the time to be brutally honest about how much money is coming in and going out of your bank account each month. Ally WalletWise offers a monthly budget worksheet that helps you map out your monthly expenses to determine how much is leftover once all the bills are paid. Taking a look at the true picture of your monthly spending can also help you discover areas where you can save. In fact, Consumer Reports suggests that you keep your debt payment below 36 percent of your gross income. Cutting out those extra bills here and there can help free up money for your monthly car payment and additional expenses – which we’ll discuss further below.

Once you know how much money you’re working with, head on over to Ally’s Auto Financing Calculator. There you can play around with the numbers as you punch in the amount you plan to finance, the rate you expect you’ll receive and the term (in months) to get an estimated monthly payment.

How Much Should the Down Payment Be?

Once you’ve determined your monthly budget, you’ll also have a clearer picture of how much you can pay as your down payment. Will you have a trade-in? Learn how to get the most out of your trade in, as that will add to your spending power. ConsumerReports.org notes that the higher your down payment is, the better. They recommend putting down as much as you’re able to afford, with the ideal down payment at around 20 percent. If you pay more of the costs upfront, you’ll be financing less. A smaller amount financed means that your monthly payments will be lower, and ultimately, you’ll pay less money in finance charges.

How Long Do You Plan to Keep Your Car?

Another point to consider is how long you plan to keep your vehicle. If you’re the type who likes a new car every few years, it may make sense to lease instead of buy. It’s important to consider the true costs and compare each model you’re considering, according to ConsumerReports.org. They note that if you choose to keep a car for eight years as opposed to five, you’ll have lower costs due to lower depreciation and the fact that you’ll have a few years without any car payments once you’ve paid the financing off in full.

How Much Will Gas, Maintenance and Insurance Cost?

Of course there are other monthly and annual costs to consider when owning a car. After all, it costs money to fill up your gas tank, get the oil changed and to keep your car insured. You’ll want to consider the following when working out costs:

  • How many miles you drive (work commute, weekend travel, road trips) to help you calculate fuel costs
  • Average maintenance costs on the vehicle
  • Your driving record (this can affect your car insurance).
  • Your age (insurance premiums are higher for younger drivers)

Insurance premiums can vary a great deal, but you can take a closer look at average costs by make and model with this guide from MSN Money. Here are some additional things to consider as you’re searching for insurance.

Related Costs to Consider

Buying or leasing a new car can come with several additional charges, which could, include the following:

  • Sales tax
  • Title and registration costs
  • Documentation fees
  • Destination charges

To simplify your budgeting, Kelley Blue Book put together a handy guide that allows you to determine the 5-year cost to own a vehicle, factoring in out-of-pocket expenses like insurance, fuel, state fees, financing, maintenance, repairs and depreciation.

As always, if you have any questions about the costs of owning a new car, consult the experts at your local dealership.

Other Posts You Might Like

Auto Financing: What To Know Before Buying Or Leasing A Vehicle
How To Get The Most Value From Your Vehicle Trade-In
Understanding How Your Credit Can Affect Buying A Car


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  1. 4

    Good morning,

    My last dealership is threatening to garnish my wages because i did a voluntary car possession.I know i am going to owe them the balance on my loan after they auction off the car but i won’t be able to afford a garnishment or to pay on that loan immediately because i have car payments, insurance i have to make now and other obligations, three kids and one income… i can barley afford to live as it is…is there anything i can do? What are my options?

  2. 7

    I liked how you included the fact that tax/title fees are something to consider as they are higher than alot of people realize. Sometimes when selling your old car for a new one you may have even lost your title or need to get a title, I’ve used https://autotitlepros.com in the past to help with my title issues in North Carolina, but again that is another cost that may arise if you don’t have all your ducks in a row when selling your old car or buying a new car.

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