Car Affordability Calculator
It works backwards from take-home pay to the car price your budget supports, counting insurance, fuel and maintenance alongside the loan payment.
Car price you can afford
$21,888
Monthly budget
$750.00
Running costs
$350.00
For the loan
$400.00
Loan supported
$20,201
Net trade-in
$0
Sales tax
$1,313
What it calculates
It works backwards from take-home pay to the car price your budget supports, counting insurance, fuel and maintenance alongside the loan payment.
Why it matters
Dealers sell to a monthly payment, which is easy to stretch by lengthening the term. Working from total cost of ownership instead protects against a car that quietly consumes your budget.
Who it's for
Anyone shopping for a car, particularly buyers with a trade-in or negative equity to roll over.
Formula
- T
- Monthly take-home pay
- p
- Share of take-home pay allowed for the car
- RC
- Running costs — insurance, fuel and maintenance
- NT
- Net trade-in after settling what is still owed
Worked example
$5,000 take-home, 15% budget, 7% over 5 years
- 1Budget = 5,000 × 15% = $750 a month
- 2Running costs of $350 leave $400 for the loan
- 3$400 a month at 7% for 5 years supports about $20,200 of loan
Roughly $20,200 of car before any deposit or trade-in
How the car affordability calculator works
The budget starts as a share of take-home pay — 15% is a common ceiling for all car costs combined. Insurance, fuel and maintenance are subtracted first, because they are owed whether or not there is a loan. What remains supports a loan, and dividing it by the standard payment factor gives the principal that payment can carry. Adding the deposit and net trade-in gives total buying power, and dividing by one plus the sales tax rate converts that into the sticker price you can actually sign for.
Insurance, fuel and maintenance are owed whether or not there is a loan, so they come out of the budget first. What remains is what can actually service a car payment.
Dealers sell to a monthly payment, which is easy to stretch by lengthening the term. Working from total cost of ownership instead is what keeps the number honest.
Common mistakes
- Budgeting for the loan payment alone and being surprised by insurance and fuel.
- Accepting a seven- or eight-year term to reach a monthly payment, which guarantees negative equity.
- Rolling negative equity from an old loan into the new one and starting further behind.
- Forgetting sales tax, title and registration, which are charged on the price you agreed.
Tips and best practice
- Negotiate the price of the car, never the monthly payment.
- Get a loan quote from your own bank or credit union before visiting the dealer.
- Keep the term to four years or less; if that payment is unaffordable, the car is too expensive.
Frequently asked questions
How much car can I afford?
A common ceiling is 15% of monthly take-home pay for all car costs combined, including insurance, fuel and maintenance rather than the loan payment alone.
What is the 20/4/10 rule?
Put 20% down, finance for no more than four years, and keep total car costs under 10% of gross income. It is conservative but keeps buyers out of negative equity.
Should I include insurance in my car budget?
Yes. Insurance, fuel and maintenance are owed whether or not there is a loan, so leaving them out overstates what you can afford by hundreds a month.
What if I owe more than my trade-in is worth?
That negative equity reduces your buying power directly, and rolling it into the new loan means borrowing against a car you no longer own.
Does a longer loan term help affordability?
It lowers the monthly payment but raises total interest and keeps you in negative equity for longer. It makes an unaffordable car look affordable rather than making it so.
Related calculators
Methodology & trust
- Formula source
- Standard auto lending payment factors and cost-of-ownership budgeting rules
- Last updated
- 2026-07-28
- Privacy
- Every calculation runs in your browser. No inputs are sent to a server or stored.