Lesson P201.7 · Personal Finance 201: Build Wealth
Cars and trucks: how much vehicle you can afford
4-minute read · Figures for tax year 2026
Photo: David McBee / Pexels, Pexels License
The short answer
Dave Ramsey's guideline caps everything you drive, added together, at half your yearly income, and his team points out that the car you can afford is probably a used one. Buying less vehicle with cash means waiting and driving older, with no payment. Financing or leasing gets you a newer vehicle now, with a payment and interest; Ramsey calls leasing the most expensive way to drive. The car-loan interest deduction gives back only part of the interest.
The half-your-income guideline
Add up what every vehicle in your household would sell for today, not what you owe on it. Compare that total with half your yearly income.
Example (made-up numbers): a household earning $48,000 a year keeps all its vehicles together worth no more than $24,000. If the pickup is worth $17,000 and the car $9,000, the total is $26,000, which is $2,000 over.
If you're over the line, the slower path is to add no vehicle and save for the next one in cash; adding or upgrading on credit keeps you over the line longer and adds a payment. If a payment is squeezing the budget hard, some people sell and buy a cheaper car with cash.
What a vehicle really costs
The payment is the part you see. Fuel, insurance, repairs, tires, registration and the value it loses every year are the rest.
Example (made-up numbers): fuel at $250 a month, insurance at $125, repairs and tires at $100, and $400 a month in lost value come to $875 a month before any payment.
Ramsey calls leasing the most expensive way to drive. Leases cap your miles, typically around 10,000–15,000 a year, then charge for every mile over and for extra wear when you turn the vehicle in.
Buying used with cash
- Pick a price and a date, and divide. Example: $9,000 in 12 months is $750 a month into a vehicle sinking fund.
- Shop used. A new vehicle loses value fast.
- At a dealer, read the Buyers Guide posted on the vehicle. "As is" means the dealer won't pay for repairs after the sale.
- Pay an independent mechanic to inspect it and give you a written report with repair estimates. A vehicle history report doesn't replace an inspection.
If you already have a loan
A car loan is consumer debt, so it goes on your debt list from Personal Finance 102. When it's the debt you're attacking, pay extra on the principal and send windfalls there. If the rate is very high, a credit union may offer a lower one. Refinance only if the payoff date stays the same or comes sooner. Stretching the term shrinks the payment but adds interest and keeps you owing longer. The same or a shorter term costs more each month and gets you out sooner.
The car-loan interest deduction
For 2025 through 2028, you can deduct up to $10,000 a year of interest on a loan taken after 2024 for a new personal vehicle with final assembly in the U.S., under 14,000 pounds. Leases and used vehicles don't count, and the deduction phases out above $100,000 of modified adjusted gross income ($200,000 joint).
It lowers what a loan costs; it doesn't pay for the loan. Example (made-up numbers): pay $2,500 of interest in a year, and in the 12% bracket the deduction saves $300. You're still out $2,200.
Work trucks
A truck your business owns and uses to earn money is a business asset, covered in Business Finance 102: Bank-Ready. The business rule is cash first, and any business borrowing has to pass the five Borrowing Rules.
Two paths: a new truck or a cheaper used one
Two ways to go
Lease or finance a new truck, or buy a cheaper used one with cash?
Conservative path
Buy a cheaper used truck with cash
Save toward a price and a date in a vehicle sinking fund, then buy used after an independent mechanic's inspection.
- Cash
- The full price comes out of savings, so it takes months of saving first. After that there's no payment.
- Risk
- Repairs are yours, and "as is" means the dealer won't pay for them after the sale. An inspection lowers that risk; it doesn't remove it.
- Time
- Months to save, plus the days it takes to shop and get the inspection.
- What goes wrong
- A truck bought in a hurry without an inspection, or a sinking fund spent on something else, puts you back to borrowing.
Bolder path
Lease or finance a new truck now
Drive a new truck with a warranty now, and pay for it every month.
- Cash
- Little up front, then a payment every month on top of fuel, insurance and repairs.
- Risk
- A new vehicle loses value fast, so a loan can leave you owing more than the truck is worth. A lease caps your miles, typically around 10,000–15,000 a year, and charges for every mile over and for extra wear.
- Time
- You can be driving it this week.
- What goes wrong
- The payment comes due in a slow month, a longer term gets stretched to shrink the payment, or mileage and wear charges land at turn-in.
When each fits
Used with cash fits when the vehicle you have still runs, you can wait while the sinking fund grows, and a payment would crowd out your Winter Fund or your debt plan. Financing or leasing new fits when the payment fits your written budget in your slowest month, everything you drive stays inside the half-your-income guideline, and you've compared the total price with every tax and fee, not the monthly payment. A truck your business owns follows the Business Finance 102 rules instead.
Your Move
Do this week
- List each vehicle your household owns and what it would sell for today.
- Add them up and compare the total with half your yearly income.
- Pick a price and a date for your next vehicle, divide, and set a monthly transfer into a vehicle sinking fund.
- If you have a car loan and it's the debt you're attacking now, make one extra principal payment this month.
Log it: Vehicle plan set.
Common questions
How much car can I afford?
Dave Ramsey's guideline is all your vehicles together worth no more than half your yearly income, bought with cash. On $48,000 a year, that's $24,000 or less in total.
Is leasing cheaper than buying?
Ramsey calls leasing the most expensive way to drive. Leases also cap your miles and charge for wear when you turn the vehicle in.
Does the car-loan interest deduction make a new truck worth it?
It gives back only part of the interest. In the 12% bracket, $2,500 of interest saves $300, so you're still out $2,200. The truck's price and payment decide the question; the deduction only trims the interest.
Watch out for
- Shopping by the monthly payment. Ask for the total price with every tax and fee.
- Buying "as is" without an independent inspection.
- Stretching a loan longer to shrink the payment. You pay more interest and stay upside down longer.
Free help
- FTC: Buying a used car from a dealer
- NFCC: Nonprofit credit counseling, 877-360-6322, if a vehicle payment is squeezing your budget
Free practice
Lesson check
5 questions on this lesson, one at a time, with the answer and the reason after each. Pass with 4 right, including every must-know question.
This is general education, not tax, legal, investment or insurance advice. Rules change and every situation is different. Check the sources below, and talk to a qualified professional before you act on it.
Sources
- Ramsey Solutions: How much car can I afford? (checked October 11, 2026)
- Ramsey Solutions: How does a car lease work? (checked October 11, 2026)
- FTC: Buying a used car from a dealer
- IRS: Working Families Tax Cuts: individuals and workers
- IRS: Rev. Proc. 2025-32, 2026 tax brackets