Car Affordability Calculator — How Much Car Can I Afford?

Car Affordability Calculator: How Much Car Can I Afford?

This car affordability calculator can help you answer those burning questions about your new vehicle, such as: "How much car can I afford?", "What car can I afford?" or "How much car payment can I afford?". If you are looking to buy a new or used car but are not sure what the target price of your new vehicle should be, this calculator is designed for you.

No matter your current financial situation, our car affordability calculator will help you figure out what the maximum price of your new car could be without too much difficulty.

In the text below, we will explain to you:

• How much car can I afford?
• How to use our car affordability calculator?
• How much should you spend on a car?
• What are the total costs of owning a car?

If you have already found a car and want to know what the payments will be, try our auto loan calculator. If you want to find out how much your car is worth or check whether the price you were offered for your used car was fair, use the car depreciation calculator. Our gas calculator estimates your gas usage and the expenses of traveling by car.

How much car can I afford?

When buying a car, one of the first and most crucial steps is setting a proper budget. If you plan to pay in cash, the budget determination is a piece of cake. But if you cannot pay cash for a car, you need to find the answer to the question, "How much car can I afford?". In other words, it is a question of how much you should spend on a car.

The correct answer is based on precise calculations that take into account many variables, such as the trade-in value of your current car, down payment, sales tax, etc. Another critical factor is the maximum amount of car loan you can take. Note here that by maximum amount of car loan, we mean the maximum reasonable amount, not the maximum borrowing capacity. It is very irresponsible to use your whole creditworthiness on a car loan.

In practice, it is quite hard to give "a rule of car affordability." However, for the purposes of this car affordability calculator, we adopted the way of thinking that might be expressed in the following statement: to find how much car you can afford, you need to know the size of the loan you can take. If you want to know how much you can borrow, you need to know how much you can repay each month.

That is exactly the chain the calculator follows:

1. Monthly payment you can afford. Enter it directly, or let the calculator derive it from your gross income: a share of income for all car costs (10% by default) minus fuel, insurance, maintenance and other running costs.
2. Maximum loan. The largest loan that this payment repays over the chosen term at the given interest rate.
3. Money for the car. Loan + cash down payment + trade-in equity (trade-in value minus what you still owe on it).
4. Maximum car price. The highest price whose total with sales tax and fees still fits that money.

How to use our car affordability calculator?

1. Choose the currency and units. 20 currencies are available, including the US dollar, Russian ruble, euro and pound. American units use miles, miles per gallon and price per gallon; metric units use kilometers, liters per 100 km and price per liter. The fuel results are always shown in both systems.
2. Set your budget. Either type the monthly payment you can afford, or switch to My income, enter your gross income per month or per year and the share of income you are ready to spend on the car.
3. Describe the loan. Loan term in months and annual interest rate (APR).
4. Describe the purchase. Cash down payment, trade-in value and the amount still owed on it, sales tax (and whether it is charged on the price minus the trade-in) and one-time fees such as title, registration and dealer fees.
5. Add the cost of owning the car. How many years you plan to keep it, the yearly depreciation rate, the distance you drive, fuel economy, fuel price, insurance, maintenance and other yearly costs.

The calculator shows the maximum car price, the loan and monthly payment, where every dollar goes, your total monthly car costs, a check against the 20/4/10 and 35% rules, the car price you could afford with other loan terms and the total cost of ownership.

Example

Suppose you can pay $500 a month for 48 months at 7% APR, have a $4,000 down payment, pay 7% sales tax and $800 in fees:

• Maximum loan: $500 × (1 − (1 + 0.07/12)⁻⁴⁸) ÷ (0.07/12) = $20,880.10.
• Money for the car: $20,880.10 + $4,000 = $24,880.10.
• Maximum price: ($24,880.10 − $800) ÷ 1.07 = $22,504.77; sales tax $1,575.33.
• Total interest over the loan: $3,119.88.

With the same $500 payment, a 36-month loan buys a car of about $18,125, and an 84-month loan one of about $33,952 — but the interest grows from about $1,807 to about $8,871.

How much should you spend on a car?

Popular rules of thumb help to keep a car purchase reasonable:

• The 20/4/10 rule — put down at least 20%, finance the car for no more than 4 years (48 months), and keep all car expenses — loan payment, fuel, insurance and maintenance — under 10% of your gross monthly income.
• The 35% rule — the price of the car should not exceed 35% of your gross annual income. With a $60,000 salary that is up to $21,000.
• The 15% rule — a looser version that allows up to 15% of monthly take-home pay for the car payment alone.

The calculator checks your result against the 20/4/10 and 35% rules automatically when you enter your income. The rules are guidelines, not laws: a household with no other debts can sometimes afford more, and one with a large mortgage or student loans should aim for less.

What are the total costs of owning a car?

The price tag is only the beginning. The total cost of ownership over the years you keep the car includes:

• Depreciation — the value the car loses. A new car typically loses 15–20% of its value a year during the first five years. The calculator uses a constant yearly rate: value after n years = price × (1 − rate)ⁿ.
• Financing — the loan interest you pay while you own the car.
• Sales tax and fees — paid once at purchase.
• Fuel — distance ÷ fuel economy × fuel price (in miles per gallon) or distance × liters per 100 km ÷ 100 × price per liter (in metric units).
• Insurance, maintenance and repairs, and other costs such as parking, tolls and annual registration.

The money you get back when you sell the car is already accounted for through depreciation, so the total shows what owning the car really costs you. The calculator also divides it by the number of months and by the distance driven, per mile and per kilometer.

FAQs

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

Your gross monthly income is $5,000, so the 10% rule gives a monthly budget of $500 for all car costs. If fuel, insurance and maintenance take $300 a month, $200 is left for the loan payment. The 35% rule caps the price at $21,000. Enter your own numbers to see the exact price with your down payment, rate and taxes.

How much should my car payment be?

By the 20/4/10 rule, the car payment together with fuel, insurance and maintenance should stay within 10% of your gross monthly income. Some advisers allow up to 15%.

Is it better to take a longer loan to lower the payment?

A longer loan lowers the payment or lets you buy a more expensive car, but you pay more interest and are more likely to owe more than the car is worth. The table "Car price by loan term" in the results shows this trade-off for your numbers.

How does a trade-in affect how much car I can afford?

Trade-in equity — the trade-in value minus the loan balance on your current car — works like extra down payment. In most US states it also lowers the sales tax, because tax is charged only on the price minus the trade-in. If you owe more than the car is worth, the negative equity reduces your budget.

Does the calculator work outside the US?

Yes. Choose your currency (for example rubles or euros) and metric units. If car prices in your country already include VAT, set the sales tax to 0.