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: Jul 20, 2022

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 what your current financial situation is, 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 already have 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 want to 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 the right budget. If you plan to pay in cash, the budget determination is a piece of cake. But if you are not able to pay cash for a car, you need to find an 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 important factor is the maximum amount of a 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: In order 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 payments 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 average credit card balance is $100, than you can reasonably spend $450 monthly on a car payment. Another rule of thumb says that the total value of the car 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 the knowledge of 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 then you think.

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

  • Monthly payment you can afford is a maximum amount you can spend on a car loan each month. When establishing this value remember the rule of one third, 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 on your bank account).
  • Current car trade-in value is a value of your current car (only if you have one, obviously).
  • Interest rate is the cost of a car loan (in our calculator it should be provided on a yearly basis – APY.
  • Loan term is the term of your car loan. We suggest it to 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 you fill in the last field, our car affordability calculator will immediately show you your results. 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).

How much should you spend on a car?

If you are a driver, then you have probably asked yourself the question "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 the people's financial situation differ significantly. A well-off banker from Wall Street can buy a brand new luxurious limousine. A school teacher from Wisconsin will be probably looking for an affordable used car. An unemployed hairdresser who lives 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 a 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 on 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.

Summing up, a good approximation that fits most of the people is to spend no more than 40% of the 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 you are considering buying a car, do not forget that apart from the cost of purchase, owning a car also incurs other costs 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 in 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 the car loan interest.
Tomasz Jedynak, PhD
Monthly payment you can afford
Money you have
Current car trade in value
Interest rate
Loan term
Maximum car value
Loan amount
Interest paid
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