Question 1

What percentage of income should go to a car payment?

Accepted Answer

The 15% rule caps your total car costs — payment plus insurance — at 15% of monthly take-home pay. Most financial planners treat 10% as conservative and 20% as the absolute ceiling. The national average in 2025 sits at 32% of take-home, which is why so many households feel permanently squeezed.

Question 2

How much car can I afford on a $60,000 salary?

Accepted Answer

On a $60,000 salary your monthly take-home is roughly $3,900. The 15% rule puts your ceiling at about $585/month for payment and insurance combined. If insurance runs $175/month, your actual car payment ceiling is around $410. Most dealerships will try to put you in something $200-300 higher than that.

Question 3

Is a $700 car payment too high?

Accepted Answer

It depends entirely on income. On a $90,000 salary, $700 is inside the 15% ceiling. On a $60,000 salary, it represents 22% of take-home — well above it. The payment alone is not the answer. Your income is half the equation.

Question 4

What is the true monthly cost of car ownership beyond the payment?

Accepted Answer

AAA's 2024 driving cost study puts the average all-in monthly cost of a new vehicle at $1,020 — that includes the payment, insurance, fuel, maintenance, registration, and depreciation. The payment is usually only 60-65% of what you actually spend on the car each month.

Question 5

What does a $600/month car payment cost over 5 years?

Accepted Answer

The payment alone totals $36,000 over 60 months. Add insurance at $175/month and that is $46,500. Add interest on a 7.5% APR loan and the total loan cost rises to around $42,000. The opportunity cost: $600/month invested in the S&P 500 for 5 years at historical returns is worth approximately $46,000.

Question 6

How do I know if I am overpaying on my car loan?

Accepted Answer

Three signals: your APR is above 7% and your credit score has improved since you bought, you are in a 72-84 month term because the payment felt manageable, or you have negative equity. All three are refinancing signals.

Question 7

Should I pay off my car loan early or invest the extra money?

Accepted Answer

Compare your APR to what you would earn investing. If your car loan is at 7.5% APR and the S&P 500 averages 10.5%, investing wins mathematically. If your loan is at 4% or below, investing almost always wins. If your loan is above 8%, paying it off first is often the better guaranteed return.

What is your car actually costing you?