Car Affordability Calculator
Determine the maximum car price you can afford based on your income, expenses, and loan terms. This calculator follows the 10–15% disposable income guideline for car payments.
Financial Information
How Car Affordability Works
The 15% Guideline
Financial experts typically recommend spending no more than 10–15% of your monthly disposable income on car-related expenses (payment + insurance + fuel). This calculator uses 15% for the payment alone as a conservative estimate.
Key Calculation Steps
- Calculate disposable income: Monthly Income - Monthly Expenses
- Determine monthly car payment budget (15% of disposable income)
- Calculate maximum loan amount using loan payment formula
- Add down payment to loan amount for total affordable price
Loan Payment Formula
The maximum loan amount is calculated using the present value of an ordinary annuity formula:
P = (PMT * (1 - (1 + r)^-n)) / r
- P: Loan principal
- PMT: Monthly payment
- r: Monthly interest rate (annual rate ÷ 12)
- n: Total number of payments (term × 12)
Real-Life Examples
Example 1: Entry-Level Budget
Income: $3,000/month | Expenses: $2,000 | Down Payment: $1,000
Loan: 5 years @ 7% APR
Calculation: ($1,000 disposable × 15% = $150 payment)
Result: $8,200 loan + $1,000 down = $9,200 max price
Frequently Asked Questions
1. Why use 15% for car payments?
This follows financial advisor recommendations to maintain healthy debt-to-income ratios while accounting for other vehicle expenses.
2. Should I put down 20%?
While 20% is ideal to avoid negative equity, this calculator lets you explore different down payment amounts.
