Car Affordability Calculator
You can afford about $32,360.
| Constraint | Monthly payment it allows |
|---|---|
| 10% of gross income the affordability rule | $600.00 — binding |
| 36% debt-to-income headroom what a lender allows | $660.00 |
| Your budget the tighter of the two | $600.00 |
| Loan that payment supports 60 months at 7% | $30,301 |
| Plus down payment and trade equity | + $4,000 |
| Car price after backing out 6% sales tax | $32,360 |
| Current debt-to-income before a car payment | 25% |
| Strict 20/4/10 answer 48-month term, 10% of income | $27,411 |
Your budget of $32,360 comes from a 60-month term. The stricter 20/4/10 rule — 20% down, 4-year term, 10% of income — would put you at $27,411. The gap is what a longer loan buys you, and it is borrowed from your future self at 7%.
Two limits apply and the tighter one wins. The income rule says a car payment should not exceed about 10% of gross monthly income — this is about your life having room in it, not about whether a lender will say yes. The debt-to-income ratio is the lender's test: total monthly debt payments divided by gross income, usually capped at 36–43%. A lender will happily approve a payment that wrecks your budget, which is exactly why both numbers are shown. Note this is gross income; after tax, a payment at 10% of gross is closer to 13% of what actually reaches your account. And the price shown is the car only — insurance, fuel, and maintenance are on top, and typically add 50–70% to the monthly cost of the payment itself.
Find the car price your income actually supports — checked against both the 10% rule and the debt-to-income ratio a lender will use.
How to use this calculator
- Enter your gross monthly income — before tax, since that is what both rules use.
- Add every existing monthly debt payment: rent or mortgage, credit card minimums, student loans, any other financing.
- Enter your down payment and any trade equity. Equity can be negative if you owe more than your current car is worth.
- Set the APR and term you expect, plus your local sales tax.
- Adjust the two rule percentages if you want to be stricter or looser than the defaults.
The formula
Payment budget = min(Income × 10%, Income × Max DTI − Existing debts)
Max loan = Payment × (1 − (1+r)⁻ⁿ) ÷ r · Car price = (Loan + Down + Equity) ÷ (1 + Tax rate)
Worked example — $6,000 a month with $1,500 of existing debt
- 10% of income: $600 a month
- 36% DTI headroom: (6,000 × 0.36) − 1,500 = $660 a month
- Budget: the lower of the two — $600
- Loan at 7% over 60 months: $30,301
- Plus $4,000 down: $34,301 of buying power
- Car price after 6% tax: $32,360
The two rules are close here, but which one binds matters. If existing debts rose to $1,900, the DTI figure would fall to $260 and the lender would become the constraint long before the 10% rule did.
Two different questions
People conflate "what will a lender approve?" with "what can I afford?", and they are not the same question at all.
Debt-to-income is the lender's test. It asks whether your income can service the debt, and lenders will comfortably approve up to 36–43% total DTI. That is a solvency test, not a comfort test — it says nothing about whether you will still be able to save, absorb a surprise, or take a holiday.
The 10% rule is the affordability test. It asks whether a car payment leaves room for the rest of your life. It is deliberately more conservative than any lender, and that gap is the whole point: approval is not advice.
The number this calculator does not show you
The payment is not the cost of the car. Once you add insurance, fuel, maintenance, registration, and parking, the monthly reality is typically 50–70% higher than the payment alone:
| Cost | Typical monthly |
|---|---|
| Loan payment | $600 |
| Insurance | $150 |
| Fuel | $140 |
| Maintenance and repairs | $70 |
| Registration, tolls, parking | $35 |
| Real monthly cost | ≈ $995 |
Insurance is the line that varies most and the one people check last. The same driver can pay double for one car versus another in the same price bracket — get a quote on the specific vehicle before you commit, not after you have signed.
Common mistakes to avoid
- Budgeting from the payment up. Decide the price you can afford, then negotiate the price. Dealers negotiate payments precisely because a payment can be made to hit any number.
- Using net income against the 10% rule. The rule is stated on gross; using net makes it accidentally stricter, which is not the worst error but is worth knowing.
- Forgetting insurance and fuel. They add roughly half again to the payment.
- Stretching the term to fit a nicer car. That is not affording it, that is deferring it.
- Ignoring negative equity on a trade. It reduces your buying power rather than adding to it.
How we calculate this
Two constraints are computed and the tighter one binds. The income rule is a straight percentage of gross monthly income, 10% by default. The debt-to-income constraint is your maximum DTI times gross income, minus existing monthly debt payments — the headroom a lender would allow. The lower figure becomes the payment budget, which is converted to a loan amount by inverting the annuity formula: principal = payment × (1 − (1+r)−n) ÷ r. Adding the down payment and trade equity gives buying power, and dividing by (1 + tax rate) backs out sales tax to reach a sticker price. The 20/4/10 benchmark is shown alongside using a fixed 48-month term.
Sources
Frequently asked questions
How much car can I afford on a $60,000 salary?
That is $5,000 a month gross, so the 10% rule puts the payment at $500. Over 60 months at 7%, that supports a loan of about $25,250. Add a $4,000 down payment and back out sales tax and you are looking at roughly $27,600 of car. The stricter 20/4/10 rule with a 4-year term lands closer to $24,000.
What is the 20/4/10 rule for buying a car?
Put 20% down, finance for no more than 4 years, and keep total car costs — payment, insurance, and fuel — under 10% of gross monthly income. The 20% down keeps you from being underwater immediately since new cars lose about that much in year one. The 4-year cap keeps you from paying interest on a car long after its warranty ends.
What percentage of income should a car payment be?
10% of gross monthly income is the widely used guideline, and some advisers say 15% for all car costs combined. Remember these are percentages of gross, not take-home — a payment at 10% of gross is closer to 13% of what actually reaches your account after tax.
What debt-to-income ratio do car lenders want?
Most auto lenders look for a total DTI under 36% to 43%, including the new car payment, your housing cost, and every other monthly debt. Some will go higher for strong credit. The important distinction: DTI is the lender's test of whether you can repay, not a test of whether the payment leaves you a life.
Does the calculator use gross or net income?
Gross — income before tax — because that is what both the 10% rule and lender DTI calculations use. It is worth doing the sanity check in net terms too: if a payment is 10% of gross it is often 13% or more of what you actually take home, and that is the number your budget experiences.
Should I include insurance and fuel in my car budget?
Yes, when you are deciding what you can afford. This calculator sizes the payment, but insurance, fuel, and maintenance typically add 50–70% on top of it. A $500 payment is realistically $750–850 a month of car. Insurance in particular varies enormously by vehicle — get a quote on the specific car before committing, not after.
Is it better to have a longer loan with a lower payment?
It lets you buy a more expensive car, which is the problem rather than the solution. A 72- or 84-month loan means paying interest for years after the warranty expires, and you spend most of the term owing more than the car is worth. If the only way a car fits your budget is a 7-year term, the calculator is telling you something useful.
How much should I put down on a car?
20% on a new car, 10% on a used one. The logic is depreciation: a new car loses roughly 20% of its value in the first year, so anything less than 20% down leaves you underwater from the start. On a used car the steepest drop has already happened, so a smaller deposit is less risky.