CarInsurance.com Insights
- New car loan payments average $767 a month. But that figure only covers the loan itself. Gas, maintenance and insurance are extra, so your true car ownership costs would likely be much higher.
- New cars depreciate by roughly $361 per month. Depreciation can have a major impact when you have to sell or trade in your car for less than you thought it was worth.
- A full-coverage policy costs $2,578 per year, on average. If you lease or finance a new car, the lender typically requires full coverage, so you’ll have to pay a higher premium.
The average cost of a new car in December 2025 was around $50,000, according to Kelley Blue Book data. The average used car price was slightly lower at $26,000. Both figures represent all-time highs.
If you’re in the market for a new or used car, it’s important to set a realistic budget: one that doesn’t just focus on the price of the car, but on the total cost of owning the vehicle. In this guide, we’ll explain how to set a realistic car-buying budget so you can shop for a car confidently without any surprises when you visit the dealership.
How much car can you actually afford?
Before you shop for a car, set your budget using the 20/40/10 rule: Put down at least 20% of the price, keep the loan term to four years or less, and cap your total monthly car expenses, like the loan payment, insurance and gas, at 10% of your gross income.
The 20% down payment matters because new cars lose value fast, and putting more money down keeps you from owing more than the car is worth. Limiting the loan to four years stops you from still making payments long after the car has depreciated. And the 10% cap accounts for the full cost of ownership, not just what you owe on the loan.
Here’s an example of the 20/40/10 in practice: if you earn $5,000 a month before taxes, the 10% cap gives you $500 total for the car, payment, insurance, gas and maintenance together. You can swap in your own monthly income and work backward from there to figure out what car price actually fits your budget.
Sophie’s Tip
The 20/4/10 rule is a guide, not a gate. If your numbers land a little outside it, that is information, not a verdict. Adjust the price, the down payment or the timeline until the whole thing fits your life.
What to budget for before you sign
Before you head to the dealership, it’s important to know that the price on the window sticker isn’t the price you actually pay for the car. Your real out-the-door costs include the sticker price, plus several other fees, including:
- Sales tax
- Title fees
- Registration fees
- Dealer fees
- First month’s insurance premium
You should budget for the total out-the-door number so you don’t encounter any surprises when it’s time to sign. You can use the table below to see how much you might pay for these upfront costs on a $50,000 new car.
| Upfront item | Typical amount |
|---|---|
| Down payment (20% of price) | $10,000 |
| Sales or use tax (varies by state) | $1,500-$4,500 |
| Title and registration | $150-$500 |
| Dealer documentation fee | $100-$700 |
| First insurance payment | $150-$400 |
What new-car buyers forget to budget for
Many car buyers estimate their monthly payment and stop there, but that’s not realistic. On top of the loan payment, you’re also on the hook for insurance, gas, maintenance and registration fees, plus the highest cost of all: depreciation.
You don’t pay for depreciation until you go to sell or trade in the car, and the offer comes in lower than you expected. On average, a new vehicle loses about $361 a month in depreciation, more than fuel and maintenance combined.
Here’s a more detailed breakdown of typical car-ownership costs that you should budget for.
| Monthly line item | Monthly amount | What it is |
|---|---|---|
| Loan payment | $767 | The number most buyers plan around |
| Full-coverage insurance | $215 | CarInsurance.com national average |
| Fuel or charging | $120-$165 | Varies by vehicle and miles driven |
| Maintenance cushion | $100-$140 | Set aside before things break |
| Registration and taxes | $50-$70 | Annual cost, spread monthly; varies by state |
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Don’t forget the taxes and fees
Nearly every state charges sales or use tax when you buy a car. Typically, these charges run between 4% and 9% of the price. On a $50,000 car, you could pay anywhere from $2,000 to $4,500 in taxes. Registration and local vehicle taxes aren’t one-time costs either, so you should build those into your annual car budget.
Your sales tax rate is generally based on where you register the vehicle, not where you buy it. That means buying the car in another state probably won’t help you save any money. A handful of states also assess an annual personal property tax on vehicles, which is separate from registration fees. You can check your state’s DMV or department of revenue for specific taxes and exact figures.
The 2026 tax angles: EV credit gone, loan-interest deduction in
The federal government used to offer buyers a tax credit for purchasing an electric vehicle (EV), but it’s no longer available except in several specific scenarios. The replacement is a tax deduction on new-car loan interest, but only on certain vehicles.
What happened to the $7,500 EV tax credit?
The $7,500 federal tax credit available on new and used EVs sunset as of September 30, 2025. In 2026, you can only earn the credit if you signed a binding purchase agreement on or before the cutoff and made a payment by that date, even if the car arrived later.
That said, the IRS still offers the Alternative Fuel Vehicle Refueling Property Tax Credit for EV buyers who installed qualifying home charging equipment before July 1, 2026.
The new-car loan interest deduction
To replace the EV tax credit, a new deduction allows some buyers to write off up to $10,000 of car loan interest every year through 2028 on qualifying cars.
This deduction works differently from the old tax credit. Rather than lowering the purchase price, it reduces the interest you pay on financing, up to an annual maximum. Eligibility depends on your vehicle and your income, so treat this as a possible benefit rather than guaranteed savings.
Budgeting for car insurance
The average full coverage car insurance policy costs roughly $2,578 per year, or about $215 per month. But rates vary by vehicle, so get a quote for the exact car you’re considering to budget accurately for car insurance.
The specific model matters because insurance companies price policies based on the vehicle, not just the driver. Cars that are expensive to repair, are frequently stolen or have high horsepower often cost more to insure. EVs are typically pricier to insure than similar gas-powered models because the batteries and components cost more to replace.
Another thing to keep in mind is that full coverage car insurance is usually required if you lease or finance the vehicle, so paying the higher price for full coverage may not be optional.
Even if you’re already insured, it’s smart to shop for insurance when buying a new car, since a different carrier might offer a lower rate. It’s also worth checking whether your existing policy includes a new-car grace period that automatically covers a newly purchased vehicle for a limited time. Note that this not free coverage – it will be backdated to the purchase date.
Sophie’s Tip
Before you sign your insurance contract, run a quote on the exact car you are considering. The premium can swing by hundreds of dollars between two similar models, and you want that number in your budget now, not as a surprise next month.
Gas, hybrid or EV: Which fits your budget?
Fuel savings used to make going electric an easy decision, but that’s no longer always the case. With the federal EV credit gone, an electric car no longer guarantees lower ownership costs.
Charging still costs less than filling up, and EVs typically need less maintenance than gas cars. But those savings are offset by higher car insurance costs, faster depreciation (EVs lose an average of 57.2% of their value in five years), and the cost of installing a home charger, which can range from $1,200 to $3,000.
Because of the limitations of EVs, hybrids have become a popular option for their solid gas mileage, lower maintenance costs and no charger to install.
The table below lays out estimated annual ownership costs for gas cars, hybrids and EVs, based on 2024 data from AAA.
| Cost | Gas | Hybrid | EV |
|---|---|---|---|
| Fuel or charging | $1,881 | $1,184 | $613 |
| Insurance | $1,583 | $1,545 | $2,053 |
| Upkeep | $1,634 | $1,419 | $1,138 |
| Upfront extras | None | None | Home charger ($1,200 to $3,000) |
Should you buy a car with your tax refund?
Putting your tax refund toward a down payment might sound tempting, but refund season is also when the most car buyers are shopping. Used car prices tend to rise in the winter as refunds start arriving. It’s possible that the same car could cost more in April than it did in December. For context, used car prices have climbed an average of 3.5% every March since 2009.
That doesn’t mean using your tax refund as a down payment is a mistake, it just means that when you buy can make a difference in what you pay. Waiting for a quieter time of year, like the summer or fall months, could potentially stretch your money further.
Before-you-buy budgeting checklist
Before you start shopping for a vehicle, build your budget. That can help you avoid falling in love with a car that you can’t actually afford. Use this checklist before you shop, not after you buy a car. Accounting for each expense makes your final number more accurate:
- Monthly cap: total car costs kept under 10% of your gross income
- Down payment: 20% of the purchase price set aside
- Out-the-door price: sticker price plus tax, title and fees
- An insurance quote for the specific car you’re considering
- Estimated monthly fuel or charging costs
- A maintenance cushion set aside
- State-specific taxes and annual registration costs
Key terms to know
| Term | Plain-language definition |
|---|---|
| Out-the-door price | The total you actually pay: sticker plus tax, title, registration and fees |
| Depreciation | The value your car loses over time; the biggest ownership cost, paid all at once when you sell |
| Full coverage | Liability plus comprehensive and collision; required while you finance the purchase of your vehicle |
| APR | The yearly interest rate on your car loan |
| Dealer documentation (doc) fee | The dealer’s charge for processing paperwork is added at signing |
Frequently Asked Questions: Budgeting for a new car
How much should I budget for a car?
Budget for the monthly loan amount, plan for insurance, fuel or charging, maintenance, registration and taxes. On an average new car, those extras can add several hundred dollars a month. A simple rule: keep all car costs combined under 10% of your gross monthly income.
What costs do people forget when buying a car?
The most-forgotten costs are sales tax and fees at purchase, annual registration, the full insurance premium and depreciation, the value your car loses over time. Depreciation is the largest, even though it never arrives as a bill. Budget for all four, and the real cost of ownership will no longer be a surprise.
How much should I put down on a car?
Aim for at least 20% down on a new car. A larger down payment lowers your monthly payment, reduces interest, and keeps you from owing more than the car is worth as it depreciates. If 20% is out of reach, a bigger down payment still helps, so put down what you reasonably can.
Is it cheaper to own an electric car or a gas car in 2026?
It depends on the vehicle, but gas-powered vehicles are typically cheaper. Electricity still beats gas for fuel costs, but higher insurance, a home charger and faster depreciation can offset that edge.
Can I still get the $7,500 EV tax credit in 2026?
No. The federal tax credit for new and used electric vehicles ended for cars acquired after September 30, 2025. A separate deduction now lets some buyers write off up to $10,000 in car loan interest per year through 2028, but only on qualifying vehicles. Check current IRS guidance before you count on it.
How much should I budget for car insurance?
Full coverage on a new car averages about $2,578 a year, or roughly $215 a month, based on CarInsurance.com rate data. Your exact price depends on the car, your driving record, location and coverage level. Get a quote on the specific vehicle before you buy, so the cost is no surprise.
Resources & Methodology
Sources
- AAA. “AAA: New Vehicle Costs Drop to $11,577.” Accessed September 2026.
- Cox Automotive. “Manheim Used Vehicle Value Index.” Accessed September 2026.
- IRS. “Treasury, IRS provide guidance on the new deduction for car loan interest under the One, Big, Beautiful Bill.” Accessed September 2026.
- IRS. “Clean vehicle tax credits.” Accessed September 2026.
- iSeeCars. “The Top 25 Cars That Hold Their Value Best – and the 25 Worst.” Accessed September 2026.
Methodology
CarInsurance.com commissioned Quadrant Information Services to get car insurance rates. The rates are based on sample profiles of 40-year-old male and female drivers with full-coverage policies and limits of 100/300/100 and $500 collision and comprehensive deductibles. Read the detailed methodology for more information.
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