What Car Can You Afford on a $70,000 Salary?

Purchasing a car involves more than selecting a vehicle and agreeing to a price. Understanding personal finances, ongoing ownership costs, and financing methods is necessary to determine true affordability. This requires careful consideration beyond just a monthly payment.

Understanding Your Car Budget

Determining a car budget requires evaluating your overall financial health, not just the sticker price. Financial experts often suggest the “20/4/10 rule”: a 20% down payment, a loan term no longer than four years (48 months), and total car expenses not exceeding 10% of your gross annual income. For a $70,000 gross salary, 10% is $7,000 per year, or about $583 per month, covering the loan payment, insurance, and fuel.

Lenders assess your debt-to-income (DTI) ratio, which compares your total monthly debt payments to your gross monthly income. A healthy DTI ratio for car loan approval is typically no more than 45% to 50% after including the prospective car payment and insurance. A DTI below 36% is generally considered a good ratio, indicating manageable debt. To calculate, sum existing monthly debt obligations, such as credit card minimums, student loans, and housing payments, then divide that sum by your gross monthly income.

A $70,000 salary is a gross figure, before taxes and other deductions. Your actual disposable income, or net income, will be lower. Factoring in essential living expenses like housing, food, utilities, and savings is crucial for a realistic car budget. The “10%” rule is a starting point, but individual circumstances may necessitate a lower car expense allocation.

Beyond the Purchase Price: Total Ownership Costs

The initial purchase price or monthly loan payment is only a fraction of a vehicle’s true cost. Ongoing expenses contribute to the total cost of ownership. Understanding these additional financial obligations is crucial for accurate budgeting.

Car insurance premiums vary based on factors like driver’s age, driving record, car type, and geographic location. The national average for full coverage is around $2,556 per year, or about $213 per month, but this fluctuates depending on individual circumstances. Drivers with poor credit or those involved in accidents face higher premiums.

Fuel costs are a recurring expense. The amount spent depends on driving habits, the car’s fuel efficiency (miles per gallon), and fluctuating gas prices. The average person spends about $2,000 on vehicle fuel annually, or $167 per month. This figure can be higher for longer commutes or less fuel-efficient vehicles.

Maintenance and repairs are part of car ownership. These costs include routine servicing, like oil changes and tire rotations, and unexpected repairs. Routine maintenance can range from $137 to $152, but unexpected repairs can cost thousands. Annually, maintenance and repairs average around $900, though this can exceed $1,400 depending on the vehicle’s make, model, and age.

Additional costs include annual registration fees, sales tax, and potentially property tax. Sales tax on vehicle purchases ranges from 0% to 8.25% of the price, varying by state, county, or city. Annual vehicle registration fees also vary by state, from as little as $8 to over $100, often based on vehicle weight or age.

Depreciation, the decrease in a car’s value over time, is a major and often overlooked cost. New cars lose value rapidly, with an average loss of about 20% or more in the first year. Over five years, new vehicles can lose about 60% of their original purchase price. This reduction impacts the resale or trade-in value.

Financing Your Vehicle

Once a car budget is established and total ownership costs are considered, understanding financing options is the next step. The most common method for purchasing a vehicle is a car loan. These loans involve terms such as interest rates, loan term (length), and the impact of a down payment.

Interest rates on car loans vary based on factors like credit score, whether the car is new or used, and market conditions. In early 2025, average new car loan rates were around 6.73%, while used car rates averaged 11.87%. A higher credit score leads to a lower interest rate, reducing the total loan cost. Loan terms, the repayment period, range from 24 to 84 months. Longer terms can result in lower monthly payments but often lead to paying more in total interest.

Making a down payment is beneficial. Financial experts recommend at least 20% for new cars and 10% for used cars. A larger down payment reduces the principal borrowed, lowering monthly payments and total interest paid. It also helps prevent the loan balance from exceeding the car’s depreciating value, known as being “upside down” on a loan.

Leasing provides an alternative to purchasing, often with lower monthly payments than a loan for a similar vehicle. When leasing, you pay for the vehicle’s depreciation during the lease term, usually 2 to 4 years. This option appeals to those who prefer a new car every few years and avoid resale. However, leasing comes with mileage restrictions and penalties for excessive wear and tear.

A cash purchase is another option for those with sufficient savings. Buying a car with cash eliminates interest payments and the need for a loan, simplifying the transaction and reducing overall cost. However, this approach ties up capital that could be invested elsewhere. The decision to pay cash or finance depends on individual financial goals and liquidity needs.