How much should you spend on a car?

Almost everyone shops for a car by monthly payment, because that is the number the dealer puts in front of them. It is also the number that leaves the most out.

A loan payment covers the loan and nothing else. Fuel, insurance, maintenance and registration all arrive as separate bills, on their own schedules — which is exactly why they do not feel like part of the price.

AAA’s 2026 study counts all of it — depreciation, finance charges, fuel, insurance, maintenance, registration and taxes — and puts the average cost of owning and running a new vehicle at $12,863 a year: $1,071.92 a month, over five years and 75,000 miles.

Experian puts the average new-car payment in the same year at $765 a month. The two figures measure different things — a payment partly buys the car, while AAA counts what owning it costs — so the gap between them is not a bill you could point to. But the warning in it is the right one: budget against the payment, and you have budgeted for none of the running costs, and not for the largest cost of all.

That is the whole trap. A payment you can just about manage becomes a car you cannot quite afford, and nothing about the arithmetic was hidden — it was spread across several bills instead of one, plus one cost that sends no bill at all.

Depreciation is what the car loses in value while you own it. AAA puts it at a weighted average of $4,422 a year — about $369 a month — and it is the single largest item in AAA’s total, ahead of fuel.

You never write that check. You pay it once, at the end, in the gap between what the car is worth and what you thought it was worth. That timing is why it is the most ignored number in car buying and the most expensive.

It is also the single biggest reason a two- or three-year-old car costs so much less to own than a new one. The first owner has already paid the steepest part, and you are buying what is left.

The standard rule of thumb is 20/4/10: put 20% down, borrow for no more than four years, and keep all car costs — payment, insurance, fuel and maintenance — under 10% of your gross income.

It is sound advice, and at today’s prices it is brutal. Here is what it permits, run through the Car Affordability Calculator on this site at the current average new-car rate of 6.35%.

At $40,000 of income, the rule leaves nothing at all for a payment. The running costs alone exceed the entire 10% budget. That is not a quirk of the arithmetic — it is the honest position of a lot of households, and it is why so many of them are in a payment the rule would forbid.

At the other end: AAA’s full cost of owning the average new vehicle, $12,863 a year, fits inside 10% of gross income only on an income of about $128,600. Most households do not earn that.

Neither figure means the rule is wrong. They mean the average new car is not an average person’s purchase, and treating it as the default is how the gap between payment and cost becomes someone’s problem.

Buy older. The steepest depreciation happens in the first two or three years, and a used car moves every part of the table at once: a smaller price, a smaller loan and usually a smaller insurance premium.

Attack the running costs before the payment. Insurance depends heavily on who is driving, not just on the car, so get a quote before you buy rather than after — it can change what you can afford.

Be honest about the term rather than just taking it. The average new-car loan now runs 69.5 months, and long terms are popular because they make any car look affordable. They do not make it cheaper; they make it slower, and they keep you owing more than the car is worth for longer.

And be suspicious of any monthly figure quoted without a term beside it. "$399 a month" says nothing at all until you know whether it runs for 48 months or 84.

Your own running costs. The $375 a month used above is a reasonable middle, not your figure. Insurance in particular varies several-fold between drivers for the identical car, on age, record and state — which is why it is worth quoting rather than assuming.

What kind of car you need. A half-ton pickup costs AAA $1.10 a mile to run against $0.62 for a small sedan. If the pickup does a job you actually need doing, that is a reason, not a mistake.

Whether you should buy at all. The cheapest car is the one you do not replace, and none of this arithmetic knows how much life is left in what you already own.

What the rate will be. The 6.35% used here is the average for new-car loans; a used-car loan averages 11.19%, and your own credit moves that far more than any negotiation over price.