How to Budget for Buying a Car

Buying a car is one of the biggest investments you can make, and most don't know where to start when it comes to budgeting for a large purchase like this.

Building a good budget for vehicle ownership goes beyond considering the purchase price, how much you’ll finance and your monthly payment. Consider the cost of gas, maintenance, repairs and insurance, for example.

1. Determine your income and expenses

   A good car ownership budget starts by considering your financial situation. Calculate how much you typically spend each month, then subtract that number from your monthly income. The resulting number is what you might have left to spend on other purchases, including on a vehicle. This should include any maintenance and fuel expenses—and remember— you’ll need to budget less than that to leave yourself with some breathing room.

   Example: If you bring home $2,500/month and your monthly expenses total $2,000, that leaves $500. It’s smart to budget less than that amount for a car payment—$300, for example.

2. Decide what type of vehicle is right for you

   After you’ve set a practical budget, start considering what type of vehicle you’d like to buy. Each type of vehicle comes with its own set of costs, so take time to weigh the costs and benefits. For example, you’ll save money on gas if you choose a compact car over a pickup truck, but a truck comes in handy if you plan to do any hauling. Understand your needs and how they might affect the cost of the vehicle you ultimately buy.

   Example: A pickup truck that gets 22 miles to the gallon will require a higher budget for fuel than a sedan that gets 38 miles to the gallon. This could have a big impact on your finances if you’re filling up weekly.

3. Consider your financing options

   If you’re not going to buy a vehicle outright, you’ll need to think about financing. A helpful thing you can do is to get preapproved for an auto loan, to see what kind of rate you’re able to get. This will help you determine what you could reasonably afford and whether you’ll need to consider a co-signer for your auto loan. It also provides a benchmark for financing that allows you to shop around for the best interest rate. When you start to discuss the purchase of a vehicle, it helps to have preapproval in your pocket.

   Example: If you get preapproved to finance $20,000 at 6.89% over a 5-year term, you’ll have more room in your budget than if you were approved for the same loan at 9.89%.

4. Plan for maintenance and repairs

   Budgeting for maintenance is critical no matter what type of vehicle you buy. You’ll want to account for as many “known” upkeep costs as possible: oil changes, tune-ups, brake service, tire rotations, etc. Consider how often your vehicle will need these services and budget costs accordingly. Don’t forget about major service milestones, either! Engine service at 90,000 miles or fluid flushes every 60,000 miles can be costly, but they’re also essential to maintain your investment. Remember, your vehicle is a machine with many components that could break and need to be repaired—some that could be necessary for regular operation!

5. Account for the cost of insurance

   Auto insurance is an often-overlooked cost—one that could impact your budget in a big way. Auto insurance costs can vary based on many factors, including your age, driving record, the type of vehicle you drive and even the state where you live. Once you know what kind of car you want to buy, ask your insurance provider for an estimate and budget around that monthly or biannual cost. It’s also a smart idea to see if you qualify for any discounts, such as for being a servicemember or through an employer.

   Example: You might discover that your monthly insurance for a brand-new sports car is $100, while insurance for a sedan of the same model year is $65 per month.

When buying a vehicle—especially your first one—it can feel like the costs just keeping adding up. The best way to keep ahead of them is to budget proactively. With some organization and thoughtfulness, you can make sure you're financially prepared for any and all expenses that come with your car.

Use Navy Federal’s Car Buying Center to research everything you need to finance, buy, protect and enjoy your next car.