Car Loan Affordability Calculator

Calculate how much car you can afford based on monthly income, loan term, and interest rate. Get recommended maximum car price.

Note: This calculator uses a general rule that car payments should not exceed 12% of monthly income. Your actual affordable amount may vary based on other expenses, credit score, and financial goals.

How This Tool Works

This calculator determines how much car you can afford based on the general financial rule that car payments should not exceed 12% of your monthly income. This conservative guideline helps ensure you can comfortably afford your car payment while still meeting other financial obligations. The calculator first determines your maximum affordable monthly payment (12% of income), then uses standard loan amortization formulas to calculate the maximum loan amount you can afford based on your interest rate and loan term.

The calculation uses the loan payment formula: PMT = P × [r(1+r)^n] / [(1+r)^n - 1], where P is principal, r is monthly interest rate, and n is number of months. By rearranging this formula, the calculator determines the maximum principal (loan amount) you can afford. It then adds your down payment to determine the maximum car price. The tool also calculates total interest paid over the life of the loan and total cost (loan amount + interest) to give you a complete picture of the financial commitment.

Formula

The calculation uses the loan payment formula:

Max Monthly Payment = Monthly Income × 12%
Max Loan Amount = (PMT × (1 - (1 + r)^-n)) / r
Max Car Price = Max Loan Amount + Down Payment

Where:

  • PMT = Maximum monthly payment
  • r = Monthly interest rate (annual rate / 12)
  • n = Number of months

Car Buying Tips

  • Save for Down Payment: Aim for at least 20% down to reduce loan amount and get better rates.
  • Check Your Credit: Better credit scores get better interest rates, saving you money.
  • Compare Lenders: Shop around for the best interest rates and terms.
  • Consider Total Cost: Don't just focus on monthly payment - consider total interest and overall cost.
  • Factor in Other Costs: Remember insurance, maintenance, fuel, and registration costs.

FAQ

  • What percentage of income should go to car payment?
    Financial experts generally recommend that car payments should not exceed 10-15% of your monthly take-home income. This calculator uses 12% as a conservative estimate. However, your actual affordable amount depends on your other expenses, savings goals, and financial situation.
  • Should I include down payment in the calculation?
    Yes, including a down payment increases the maximum car price you can afford. A larger down payment reduces your loan amount and monthly payments. Many experts recommend a down payment of at least 20% of the car price.
  • How does loan term affect affordability?
    Longer loan terms (72-84 months) allow you to afford a more expensive car with lower monthly payments, but you'll pay more in total interest. Shorter terms (36-48 months) have higher monthly payments but less total interest. Consider your budget and financial goals.
  • What interest rate should I use?
    Interest rates vary based on your credit score, loan term, and lender. Rates typically range from 3-10% for good credit, and can be higher for lower credit scores. Check with lenders or use your expected rate based on your credit score.
  • Is this calculator accurate?
    This calculator provides estimates based on standard loan formulas. Actual loan terms, interest rates, and approval amounts depend on your credit score, lender policies, and other factors. Always get pre-approved and compare offers from multiple lenders.

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