Car Affordability Calculator

Getting an answer takes three quick steps. The tool works from your income down to a car price, so the answer is a budget, not a sales pitch.

1. Enter your gross annual income and your down payment. Gross means before tax.
2. Enter the interest rate and the loan term in months. The default term is 48 months, which is the 20/4/10 limit.
3. Enter what you pay each month for insurance and fuel, then press Calculate, or press Enter. The maximum car price appears first and large, with the monthly payment, the total interest, the total cost and a pass or fail check for each part of the 20/4/10 rule. Press Reset to clear the form and start over.

The rate you enter should be the rate you were actually quoted, not an advertised rate. A small change in the rate moves the maximum price by hundreds of dollars.

The 20/4/10 rule is a simple test for whether a car fits your finances. It has three parts, and a car passes only when all three hold. First, put down at least 20% of the price in cash, so you start with equity and borrow less. Second, finance for no more than 4 years, or 48 months, so you are not still paying for a car that has lost most of its value. Third, keep total car costs under 10% of your gross monthly income.

The 10% in this rule covers the whole cost of running the car, not just the loan payment. Insurance, fuel and routine upkeep all count inside it, which is why this calculator asks for them. A payment that looks fine on its own can break the rule once insurance and fuel are added.

The rule is a guideline, not a law, and it is stricter than what most lenders allow. A lender may approve a larger loan, but the rule protects the rest of your budget. This is an estimate for planning. Actual terms come from your lender.

Your gross income is $72,000 a year, your down payment is $6,000, the rate is 7% and the term is 48 months, with $100 a month for insurance and fuel. Here is exactly what the calculator does.

1. Gross monthly income = $72,000 / 12 = $6,000. The 10% budget is $6,000 x 0.10 = $600 a month.
2. Payment budget = $600 - $100 for insurance and fuel = $500 a month.
3. A $500 payment over 48 months at 7% supports a loan of $20,880.10. Add the $6,000 down payment and the maximum price is $26,880.10.
4. Total interest = $500 x 48 - $20,880.10 = $3,119.90. Total cost = $26,880.10 + $3,119.90 = $30,000.

The down payment is 22.3% of the price, the term is 48 months, and the payment plus insurance and fuel is exactly $600, so all three parts of the 20/4/10 rule pass.

A longer term lowers the monthly payment, which makes a more expensive car look affordable. But it raises the total interest and keeps you paying long after the car has lost value. The table below shows the same $20,880.10 loan at 7% over three terms.

Stretching from 48 to 72 months cuts the payment by $144.02 a month but adds $1,630.92 in interest. The 4 year limit in the 20/4/10 rule exists to stop that trade from looking like a good deal. Our car loan calculator shows the same trade for any loan amount and rate, so you can compare terms side by side.

The 10% budget covers everything the car costs each month. The loan payment is the biggest part, but insurance, fuel or charging, and routine maintenance all count. Repairs do not fit neatly into a monthly figure, so set aside a small amount for them too, or keep them in mind when you read the result.

Some versions of the rule apply the 10% to gross income, as this calculator does, and some apply it to take home pay, which gives a smaller budget. The gross income version is the common one, and it is the version used here. If you want to be stricter, run the numbers with your take home pay instead and treat that as your ceiling.

Taxes, registration and dealer fees are not in the price this calculator gives. They add several percent on top, so leave room for them in your budget. Our budget calculator helps you see where the car payment sits next to rent, food and savings in a full monthly budget.

Shopping by monthly payment alone is the most common error. A dealer can always lower the payment by stretching the term, and the car gets more expensive in total while looking cheaper each month. Always compare the total cost and the term, not just the payment.

Forgetting insurance and fuel is next. A car that fits at $500 a month for the loan can break the 10% rule once $100 of insurance and $150 of fuel are added. This calculator counts them, so the answer already includes them.

Putting down less than 20% is the third mistake. A small down payment means you owe more than the car is worth in the first year, because a new car loses value fastest right after you buy it. If you cannot reach 20%, a cheaper car is usually the safer choice than a smaller down payment on the same car.