Car Affordability Calculator
Estimates the maximum car price you can afford based on your income, existing debts, down payment, loan term, and interest rate. Ideal for budget planning before visiting a dealership.
Last updated: May 2026
About this calculator
The calculator applies the widely used 20% rule (a close cousin of the 20/4/10 and 20/3/8 rules): your total monthly car payment should not exceed 20% of your monthly take-home pay. Available monthly payment capacity is therefore (monthlyIncome × 0.20) − currentDebts. That capacity is converted to a maximum loan amount using the present-value-of-annuity formula L = PMT × ((1+r)ⁿ − 1) / (r·(1+r)ⁿ), where r is the monthly interest rate (annualRate / 12 / 100) and n is the loan term in months (the dropdown values 36, 48, 60, 72 are already months — no further × 12 conversion is needed). The down payment is then added back to find the total affordable purchase price. Equivalently, L = PMT divided by the standard monthly payment factor; the previous version multiplied by the payment factor instead, which collapsed loans to a tiny fraction of their correct size.
How to use
Inputs: monthly income $5,000, existing debts $200/month, down payment $3,000, loan term 5 years (60 months), interest rate 6%. Step 1: Available payment = (5,000 × 0.20) − 200 = $800/month. Step 2: Monthly rate r = 0.06/12 = 0.005. Step 3: Factor = (0.005 × 1.005^60) / (1.005^60 − 1) = (0.005 × 1.3489) / (1.3489 − 1) = 0.006745 / 0.3489 ≈ 0.01933. Step 4: Max loan = 800 / 0.01933 ≈ $41,393. Step 5: Add down payment: $41,393 + $3,000 = $44,393 maximum car price.
Frequently asked questions
How much of my monthly income should I spend on a car payment?
Most financial advisors recommend keeping your total car costs — payment, insurance, fuel, and maintenance — under 20% of take-home pay. This calculator uses 20% of monthly income as the upper limit for the car payment alone, meaning your true all-in budget is even tighter once you add insurance. For a household earning $5,000/month take-home, that cap is $1,000/month. Staying under this threshold helps prevent a car purchase from crowding out savings and other financial goals.
Why does my existing debt reduce the car I can afford?
Lenders look at your total debt-to-income (DTI) ratio, not just the car payment in isolation. If you already have $300/month in credit card or student loan payments, that money is no longer available for a car loan. The calculator subtracts your current monthly debts from your 20% income cap before calculating the maximum affordable loan, which mirrors how auto lenders actually underwrite loans. Reducing existing debts before applying for a car loan directly increases your purchasing power.
Does a longer loan term mean I can afford a more expensive car?
Yes, but at a cost. Stretching a loan from 48 to 72 months lowers the monthly payment for the same principal, which allows a higher purchase price under the formula. However, a longer term means paying significantly more interest over the life of the loan and spending years underwater — owing more than the car is worth. Financial experts generally recommend loan terms of 48–60 months for new cars and shorter terms for used cars to minimize interest paid and depreciation risk.