How Much Car Can I Afford?
Most affordability calculators tell you what payment you can service. This one starts from the whole cost of running a car, because insurance and fuel come out of the same budget as the payment does — and then checks the answer against your existing debts.
Your inputs
Your result
Formula
Two ceilings, and the lower one wins
Affordability is bounded by two different things at once, and which one binds depends on your situation.
The first is your transport budget: the share of income you are willing to put into getting around. The payment is only part of that. Insurance, fuel and maintenance come out of the same money, and together they often cost as much again as the payment does. A calculator that ignores them will hand you a number you cannot actually live with.
The second is your debt-to-income ratio: all your monthly debt payments as a share of gross income. Lenders use it, and so should you. If you already carry a mortgage and student loans, that ceiling may bite long before your transport budget does. The calculator shows you which one is doing the limiting.
The 20/4/10 rule
A durable rule of thumb: put 20 percent down, finance for no more than four years, and keep total transport costs under 10 percent of gross income. It is deliberately conservative, and hitting all three is difficult at current prices. Its value is as a reference point — knowing you are at 18 percent rather than 10 is more useful than not knowing.
Why the term is set to four years by default
Longer terms make bigger cars look affordable, but affordability calculated on an 84-month loan is largely an illusion. You spend most of that loan owing more than the car is worth, and the interest adds thousands to the price. If the car only fits on a seven-year loan, it is worth considering that it may not fit.
What to do with the answer
Treat the result as a ceiling, not a target. Buying below it gives you room for the repair that arrives without warning, and for the insurance renewal that comes back higher than last year. Then run the specific car you are considering through the ownership calculator to see what the real five-year cost looks like.
Frequently asked questions
What percentage of income should go to a car?
Conservative guidance puts total transport costs at around 10 percent of gross income. Many households run at 15 to 20 percent. Above 20 percent, a car is crowding out saving and leaving little slack for unexpected costs.
Should I use gross or net income?
This calculator uses gross, because that is what lenders and the standard rules of thumb use. If you would rather work from take-home pay, use your net figure and raise the percentage accordingly - roughly 13 to 15 percent of net is comparable to 10 percent of gross.
How much should I put down on a car?
Twenty percent is the traditional target on a new car, and it exists for a specific reason: it roughly offsets the first-year depreciation, so you are not immediately underwater. On a used car, where depreciation is slower, less is defensible.
Does this account for sales tax and fees?
Not directly - the price shown is the vehicle price. Tax and fees typically add several percent on top, so either aim a little below the figure here or run the exact numbers through the car loan calculator.