Car Affordability Calculator

Determine your car budget based on income, existing debts, and the 20/4/10 rule. Calculate affordable monthly payment and total car price.

Affordable Payment = MIN(10% of Income, 36% of Income - Existing Debts); Affordable Price = Payment × [(1+r)^n - 1] / [r(1+r)^n] + Down Payment
$5,000/month income, $800 debts, $5,000 down, 6.5% APR, 60 months: Max payment = $500 (10% rule), Affordable price = $28,932

How much car can I afford based on my income?

Follow the 20/4/10 rule: 20% down payment, finance for maximum 4 years (48 months), total transportation costs under 10% of gross income. Earning $60k/year ($5k/month)? Max $500/month total (payment + insurance + gas + maintenance). This typically allows $20k-25k car price. Conservative: Total car payment under 15% of take-home pay. Aggressive (risky): Up to 20% of gross income. Reality: Most Americans spend 15-20% on cars, often too much.

What is the 28/36 debt-to-income rule for car loans?

Lenders use debt-to-income (DTI) ratio: Housing costs max 28% of gross income, total debts (including car) max 36% of gross income. Example: $5k/month income, $1,200 rent, $300 other debts = 30% DTI. Maximum car payment = $600 (to stay under 36%). Higher DTI = loan denial or higher rates. Best DTI: Under 30% for prime rates. Over 40% = subprime territory. Pay off other debts before car shopping for better approval odds.

Should I include insurance and maintenance in affordability?

Absolutely critical. Total cost of ownership includes: Monthly payment (obvious), insurance ($100-300/month, higher for young/new drivers), gas ($150-300/month), maintenance ($50-100/month average), registration/taxes ($50-150/month saved). Example: $400 payment seems affordable, but add $250 insurance, $200 gas, $100 maintenance = $950 total monthly cost. Many buyers forget these costs and become car-poor. Budget total ownership, not just payment.

Is it better to buy new or used for affordability?

Used is almost always more affordable: New car loses 20% value immediately, 60% value in 5 years. $35k new car = $14k in 5 years. Buy that same car used at 3 years old for $21k, save $14k. Best value: 2-4 year old certified pre-owned with warranty. Avoid: Brand new (worst depreciation) and 8+ years old (reliability risks). Exception: Some Toyotas/Hondas hold value, new vs used gap narrows. Calculate total 5-year cost including depreciation.

How much down payment should I make on a car?

Minimum 20% down to avoid underwater loan (owing more than car worth). Why it matters: New car loses 20% value year one. Without 20% down, you're immediately underwater. Example: $30k car, $0 down, owe $32k with fees, car worth $24k next year = $8k underwater. Can't sell or trade without paying difference. Larger down payment = Lower monthly payment, less interest paid, easier approval, better rates, avoid negative equity. Save 20% before buying.

What loan term should I choose - 48, 60, or 72 months?

48 months optimal, 60 acceptable, avoid 72+. Why: Shorter term = less interest, forces affordable car choice, build equity faster, less time underwater. Example: $25k at 6.5% APR: 48 months = $592/month, $3,400 interest. 72 months = $413/month, $5,172 interest. Save $1,772 with shorter term. Red flag: If you need 72+ months to afford payment, the car is too expensive. Better choice: Cheaper car with 48-month loan. Exception: 0-1% promotional rates make longer terms acceptable.

Can I afford a car if I have student loans or credit card debt?

Depends on total debt-to-income ratio. Lenders care about ALL monthly debt: Car payment, student loans, credit cards, personal loans. Rule: Keep total debt under 36% of gross income. Example: $5k/month income, $400 student loans, $200 credit cards = $600 existing debt (12%). Can add $1,200 car payment max (24%), staying at 36% total. Better strategy: Pay down high-interest debt first (credit cards 18-25% APR) before adding car payment (6-8%). More debt = higher rates and rejection risk.