How much car can I afford? A budgeting guide for Canada and the USA

The monthly payment a lender approves you for is not the same as what you can comfortably afford. Here's a simple way to set a budget you won't regret.

Start with the 20/4/10 rule

A popular rule of thumb for buying a car:

• 20% down payment
• 4 years (48 months) maximum loan term
• 10% of gross income maximum for all car costs — payment, insurance and fuel

It's conservative on purpose. Plenty of people stretch it, but the further you go past it, the more likely the car is to strain your budget.

Don't forget sales tax

The sticker price isn't what you finance. In Canada you pay GST/HST and/or PST on a vehicle — 13% in Ontario, 5% in Alberta, roughly 15% in the Atlantic provinces. In the US, state and local sales tax varies widely. Our car loan calculator pre-fills each province's rate.

How the loan term changes what you really pay

Here is a $30,000 car in Ontario: 13% tax ($3,900), $3,000 down, so $30,900 financed at 7.99% APR.

Term	Monthly payment	Total paid	Interest
48 months	$754	$36,202	$5,302
60 months	$626	$37,584	$6,684
72 months	$542	$38,997	$8,097
84 months	$481	$40,443	$9,543

Stretching from 4 to 7 years lowers the payment by $273 a month but costs about $4,200 more in interest — and you're far more likely to owe more than the car is worth for years (being "upside down"), which hurts if you need to sell or the car is written off.

Add the real cost of ownership

Before you commit, estimate the yearly cost of:

• Insurance — can vary by thousands between models and postal/ZIP codes; get quotes before you buy. Ontario and parts of BC are among the most expensive places in North America to insure a car.
• Fuel — (km per year ÷ 100) × L/100 km × fuel price. Try the fuel cost calculator.
• Maintenance and tires — budget more for older, high-mileage or luxury vehicles; in Canada, add winter tires.
• Registration and licence plates
• Depreciation — the biggest cost of a newer car, even if you never see a bill for it.

A quick way to set your budget

1. Take your monthly gross income and multiply by 10% — that's your all-in car budget.
2. Subtract estimated monthly insurance and fuel.
3. What's left is your comfortable maximum payment.
4. Plug that payment, a 48–60 month term and your expected rate into the loan calculator to find the price range to shop in.

Then search cars in that range — and check the model's recalls and owner complaints before you fall in love with one.