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Car Affordability Calculator

Created by Tomasz Jedynak, PhD
Reviewed by Bogna Szyk and Jack Bowater
Based on research by
Cipra T. Financial and Insurance Formulas; 2006
Last updated: Jun 05, 2023

This car affordability calculator can help you answer those burning questions about your new vehicle, such as: "How much car can I afford?", "What car can I afford" or "How much car payment can I afford?". If you are looking to buy a new or used car but are not sure what the target price of your new vehicle should be, this calculator is designed for you.

No matter your current financial situation, our car affordability calculator will help you figure out what the maximum price of your new car could be without too much difficulty.

In the text below, we will explain to you:

  • How much car can I afford?
  • How to use our car affordability calculator?
  • How much should you spend on a car?
  • What are the total costs of owning a car?

If you have already found a car and want to know what the payments will be, try our auto loan calculator. If you want to find out how much your car is worth or check whether the price you were offered for your used car was fair, use the car depreciation calculator. Our gas calculator estimates your gas usage and the expenses of traveling by car.

How much car can I afford?

When buying a car, one of the first and most crucial steps is setting a proper budget. If you plan to pay in cash, the budget determination is a piece of cake. But if you cannot pay cash for a car, you need to find the answer to the question, "How much car can I afford?". In other words, it is a question of how much you should spend on a car.

The correct answer is based on precise calculations that take into account many variables, such as the trade-in value of your current car, down payment, sales tax, etc. Another critical factor is the maximum amount of car loan you can take. Note here that by maximum amount of car loan, we mean the maximum reasonable amount, not the maximum borrowing capacity. It is very irresponsible to use your whole creditworthiness on a car loan.

In practice, it is quite hard to give "a rule of car affordability." However, for the purposes of this car affordability calculator, we adopted the way of thinking that might be expressed in the following statement: To find how much car you can afford, you need to know the size of the loan you can take. If you want to know how much you can borrow, you need to know how much you can repay each month.

So, taking into account that philosophy, what does a reasonable amount of car loan mean? Most financial advisors agree that the total sum of your debt repayments shouldn't be more than a third of your income. For example, if your monthly income is $5,000, your mortgage payment is $900, and your average credit card balance is $100, you can reasonably spend $450 monthly on a car payment. Another rule of thumb says that the car's total value shouldn't be higher than 40% of your annual income, but we'll discuss this issue later in the text.

Before using our car loan affordability calculator, note that knowing the approximate amount you can repay each month is essential!

How to use our car affordability calculator?

Are you curious how much you can spend on a car? Try our car affordability calculator and find out. Using the calculator is simpler than you think.

All you need to do is to provide some basic information:

  • Monthly payment you can afford is the maximum amount you can spend on a car loan each month. Remember the rule of one-third when establishing this value, which we presented in the previous section.

  • Money you have is money you have and can spend on a car (it can either be cash or the money in your bank account).

  • Current car trade-in value is the value of your current car (only if you have one, obviously).

  • Interest rate is the cost of a car loan (in our calculator, you should provide it on a yearly basis – APY is described in more detail in the APY calculator).

  • Loan term is the term of your car loan. We suggest it be no longer than 48 months.

  • Sales tax is the car sales tax rate. It is different in each state (this field is available in advanced mode).

After filling in the last field, our car affordability calculator will show you your results immediately. The most interesting value is the maximum car value. It informs you what the upper limit of value is that you can afford to spend on a new car.

The car loan affordability calculator will also estimate the loan amount, which is calculated on the basis of the monthly payment you can afford. Moreover, it will also compute the total sum of interest paid and the total value of sales tax (in the advanced mode of the calculator).

How much should you spend on a car?

If you are a driver, you have probably asked yourself, "what car can I afford?" more than a hundred times. Unfortunately, the answer to this question is not easy.

First of all, you have to take into account that people's financial situations differ significantly. A well-off banker from Wall Street can buy a brand-new luxurious limousine. A school teacher from Wisconsin will probably be looking for an affordable used car. An unemployed hairdresser living in a small town in Nevada will probably need to calculate her car affordability very carefully. So how to calculate car affordability for different people?

We believe that we can set a rule of thumb which says that average earner should spend between 20 and 60 percent of his annual income on a car.

This range is quite broad as it is intended to fit all situations. Where you fit into this range depends on your personal financial situation and… how keen you are on automobiles and vehicular activities. From a strictly financial perspective, the less you spend on a car, the better.

However, if cars are your passion and every night your dream about driving, then, of course, you can buy a more expensive vehicle. In this situation, in your personal finance, you will treat this expense more like a hobby, or realization of your dream, than the necessary costs of the vehicle that allows you to commute to work.

Another way to drive the car of your choice without a lot of fuss is to lease it. If you're willing to consider it, though, you may want to visit the car lease calculator.

In summary, a good approximation that fits most people is to spend no more than 40% of their annual income on a car. For example, if your annual salary is $40,000, then according to our rule, it means that you can buy a car for $16,000. This is not a fortune, but it should be enough to buy a car that's not too old while also being comfortable and reliable. If you don't have this money in cash, you could safely take a car loan that doesn't exceed this amount. To make all necessary calculations, remember to use our car affordability calculator!

What are the total costs of owning a car?

Last but not least, when considering buying a car, do not forget that apart from the cost of purchase, owning a car also incurs other expenses like registration, insurance (motor insurance), taxes, fuel costs, maintenance (regular service), and parking. Also, remember that an indirect cost of owning a car is the depreciation of your vehicle.

To find the real cost of owning a car, we can use some statistics:

  • U.S. Department of Labor (Bureau of Labor Statistics), in their Consumer Expenditures 2017 report, claims that the average cost of owning and operating a car is approximately $9,576 per year. $4,054 out of this amount are the acquisition cost (averaged yearly costs of depreciation, leasing payments, etc.), $1,968 are the costs of gasoline and motor oil, and $3,554 are other costs.

  • According to American Automobile Association, the average annual cost of owning a car is $8,849. This value includes the cost of gasoline, insurance, maintenance, registration, depreciation costs, and car loan interest.

Tomasz Jedynak, PhD
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