How to use the car affordability calculator
- Choose how to set your budget: as a share of your gross income or as a monthly car payment you choose.
- If you use income, enter your gross monthly income, the share you want for all car costs and the monthly insurance, fuel and upkeep that come out of it first.
- Enter the interest rate (APR), loan term, down payment and trade-in value. Under More options set the sales tax rate and fees, and choose whether they are rolled into the loan.
- Read the highest price, the loan details, and the table that shows the same payment over different loan terms.
Formula
Loan payment budget = income x share - insurance, fuel and upkeep (or the payment you choose)
Largest loan = payment x (1 - (1 + r)^-n) / r, with r = APR / 12 and n = months
Price = (loan + down payment + trade-in + tax rate x trade-in - fees) / (1 + tax rate), rounded down to a whole dollar
Without rolling in tax and fees: price = loan + down payment + trade-in
The price is checked by running it forward: the calculator computes the tax, the amount financed and the payment for that price, and steps down a dollar at a time if cent rounding pushes the payment over the budget.
Worked example: a $6,500 monthly income
With 10% of $6,500 for all car costs, the budget is $650. After $250 for insurance, fuel and upkeep, the loan payment budget is $400.
At 7% APR for 60 months with $4,000 down, a 6% sales tax and tax rolled into the loan, the highest price is $22,830. Tax is $1,369.80, the amount financed is $20,199.80, the payment is $399.98 and the interest is $3,799.03. Cash due at signing is $4,000.
The same $400 budget over other terms: 36 months reaches $15,994, 48 months $19,532, 72 months $25,907 and 84 months $28,776. The longer terms reach higher prices, but 84 months costs $7,097.10 in interest instead of $3,799.03.
Start from the payment, not the sticker price
A salesperson may ask what monthly payment you want, which makes it easy to stretch a term until almost any car fits. This tool works the other way. It starts from what the car may cost you each month in total, converts that to a loan size, then to a price. The table makes the trade-off visible: a longer term raises the price you can reach with the same payment, and raises the interest you pay.
A budgeting rule of thumb
One often-quoted guide is to put about 20% down, finance for no more than 4 years, and keep total car costs, including insurance and fuel, near 10% of gross income. It is a rule of thumb, not a standard, and the right numbers depend on your other obligations. The defaults here use 10% as a starting point that you can change. To see how much of your income your debts already use, try the debt-to-income ratio calculator.
Compare buying with leasing
The price you can afford to buy is not the same as the car you can lease for the same payment, because a lease pays only for the part of the value you use. Compare with the car lease calculator. Once you pick a car, the car payment calculator gives the full loan schedule, and the car depreciation calculator shows how much value you may lose along the way.
Assumptions and limits
- A fixed-rate loan with equal monthly payments for the full term. The final payment absorbs rounding.
- Sales tax is the rate you enter times the price minus the trade-in. Local rules vary, and the default 6% is an example.
- The default APR is an example value, not a current rate. Your credit and the lender decide your real rate.
- The price is rounded down to a whole dollar so the payment stays within your budget.
- Lender approval, rebates, dealer add-ons, registration and vehicle-specific insurance and fuel costs are not modeled.
- This is an estimate, not a recommendation to spend the maximum or financial advice.
Frequently asked questions
How much car can I afford on my income?
Choose the share of gross income you are comfortable spending on all car costs, subtract insurance, fuel and upkeep, and the rest is your payment budget. With $6,500 of income at 10%, that leaves $400 and a price of about $22,830.
Does a longer loan make a car more affordable?
It lowers the payment for a given price, so the same payment reaches a higher price. But total interest rises quickly, from $3,799 over 60 months to $7,097 over 84 months in the example, and you may owe more than the car is worth for longer.
What is the 20/4/10 rule?
It is a rule of thumb: put 20% down, finance for 4 years or less, and keep total vehicle costs under about 10% of gross income. It is a budgeting starting point rather than a lending rule.
Should I include insurance and fuel in my car budget?
Yes, they are part of what the car costs each month. Entering them first leaves the right amount for the loan payment, so you do not buy a car whose payment fits but whose running costs do not.
Why is the highest price a whole dollar amount?
The tool rounds down to the nearest dollar so that the monthly payment, including cent-level tax and rounding, never exceeds your budget. Rounding up could push the payment a few cents over.