Car Affordability Calculator
Estimate how much you can spend on a new vehicle based on your monthly budget.
How to Use the Car Affordability Calculator
Buying a car is one of the most significant financial decisions you'll make. Rather than looking at the total price first, many financial experts recommend starting with your monthly budget. This calculator reverses the standard loan math to tell you exactly what sticker price you can afford based on your preferred monthly payment.
The Math Behind the Calculation
To determine your affordability, we use the Present Value formula for an annuity. The calculator takes your desired monthly payment (PMT), the interest rate (r), and the number of months (n) to find the maximum loan amount you can support:
Once the loan amount is calculated, we add your down payment and net trade-in value (Trade-in minus Amount Owed) to arrive at the total purchase price.
Applying the 20/4/10 Rule
While this tool helps you find a price point, following the 20/4/10 Rule ensures long-term financial health:
- 20% Down: Put at least 20% down to avoid "gap" situations where you owe more than the car is worth.
- 4 Years: Limit the loan term to 48 months (4 years) to minimize interest and keep up with depreciation.
- 10% Income: Your total monthly vehicle expenses (payment, insurance, fuel, maintenance) should not exceed 10% of your gross monthly income.
Realistic Example
Suppose you can afford $500 per month. You have $4,000 saved for a down payment and a trade-in worth $2,000. If you secure a 60-month loan at 6% interest:
- Your maximum loan amount would be approximately $25,863.
- Adding your $4,000 cash and $2,000 trade-in brings your total buying power to $31,863.