How To Budget for a New Car

The first step towards buying a new vehicle is figuring out how much you can afford to spend. There’s no secret formula; only you can determine what makes the most sense for your financial situation. However, there are some general rules to consider before you buy.

We’ll walk you through all the financial expenses involved and outline six things you should consider when budgeting for a new vehicle.

#1 Total Price of a New Vehicle


People often forget that the total price of a vehicle goes beyond what you see online — or on the sticker. There are other expenses to consider, in addition to the selling price such as taxes and registration fees.

  • First-time buyers will need to register their vehicle, which costs $85 in Alberta.
  • If you’re just switching over your registration and plate from your previous vehicle, it’s $23.
  • You may also consider buying an extended warranty, which can cost anywhere from $500 to $2000, depending on the dealer and warranty.

Always keep in mind regular maintenance costs that come with owning a new vehicle too, as well as fuel and insurance.


#2 Down Payment

It’s a good idea to put some money down when buying a new car. The bigger your down payment is, the less money you need to borrow, which means smaller payments and less interest. However, only put down as much as you can afford to. If your financial agreement is open ended, you can always throw down extra cash at a later time. Don’t leave yourself strapped for cash.

Another thing to consider is your interest rate. If you’re able to score a good interest rate, it might make more sense to put any extra money you have against debts that have a higher interest rate, like your credit cards. They typically have much higher interest rates than car loans.

#3 Monthly Payment

This is where you determine what you can afford to pay each month in car payments.

Factors To Consider:


You might have heard of the 10% rule before. It encourages new car owners to allocate 10% of their monthly income towards their ride. For example, if you make $4,000 a month, you should spend roughly $400 a month on car payments. Some argue that 15% is a more realistic suggestion. Ultimately, it depends on what you feel most comfortable committing too and what you think you can afford. It also depends how much disposable income you like to have each month.

#4 Trade In

Unless you’re a first-time buyer, you probably already have a vehicle. Guess what? Most dealerships will let you trade in your old ride for an amount which you can then use against the selling price of your new vehicle.

Trading in your old vehicle is a great idea for three reasons:

  • You don’t have to deal with the hassle of a private sale, which can be time-consuming.
  • If you live in an area where there isn’t a lot of parking, you won’t have to worry about finding a spot to keep your vehicle until you decide what to do with it.
  • Not only does it reduce the cost of your new car, it also lessens the taxes you’ll end up paying.

Also Read: Why Trading in Your Car is the Best Option

#5 Debt

Most financial experts agree that the amount of money you spend on debts shouldn’t be more than 36 percent of your gross income.

Here’s How To Use the 36 Percent Rule:


For example, if you make $60,000 before taxes, your total debt payments should not be more than $21,600 a year. If you’re paying roughly $15,000 a year on debts, you have an extra $6,600 to put towards a car loan, or $550 a month.

#6 Car Loan Calculator

This is usually the final step. You’ve done some shopping around and you’ve found a couple of vehicles you like, but you’re still unsure which one fits your budget the best. This is where a Car Loan Calculator can help you make a final decision.

A Car Loan Calculator accounts for all the factors we’ve already mentioned, including a vehicle’s final selling price, your interest rate, the length of your loan term, a down payment and the amount of money you would receive if you were to trade your old car in. It does the math for you, so you’re able to make the best decision.

Final Thoughts:

  • Once you’ve decided on a budget, only look at cars you know you can afford.
  • Leave yourself some wiggle room. Don’t use all your savings on a down payment and round up the final cost of the vehicle.
  • Make sure you have money left over for other things.
  • Car payments shouldn’t be a burden. By being self-aware and knowing your budget, you give yourself all the tools to find the right car at a price you can afford.

Once you’ve mapped out a budget, it’s time to apply for financing. Don’t know how? We’ll walk you through the process here. Know what you’re doing? Then click below to apply today.