Car Affordability Calculator

What the car affordability calculator does

Most car tools start with a car and tell you the payment. This one starts where it actually matters, with the payment you are comfortable with each month, and works out how much car that buys. You enter the monthly payment you have in mind, your down payment and trade-in, the interest rate, and the loan term, and it tells you the price of car you could afford, along with the loan that payment supports and the interest you would pay.

Starting from the payment instead of the car is the honest way round, because the payment is the part that has to fit your life every month for years. Decide what is comfortable first, then see what it buys.

How to use it

1. Desired Monthly Payment. The payment you are comfortable making each month.
2. Down Payment. The cash you plan to put in up front.
3. Trade-In Value. What your current car is worth toward the deal, or zero.
4. Amount Owed on Trade. What you still owe on that car, if anything.
5. Interest Rate. The yearly rate you expect on the loan.
6. Loan Term. How many years you would take to repay.

Press Calculate to see the car you could afford, or Reset to clear it. The credit score box is there as a reminder that your rate depends on your credit; the figure comes from the interest rate you enter, so put in the rate you would realistically qualify for.

How it turns a payment into a budget

A normal loan calculator takes a loan amount and finds the payment. This tool runs that in reverse: it takes your payment and finds the loan amount that payment would clear over your term at your rate. That gives you the borrowing your monthly figure can support. It then adds the cash you are bringing to the deal, and the total is the price of car you can afford. In short, the car you can afford is the loan your payment supports, plus your own money in the deal.

Your down payment and trade equity

The cash side of the deal is your down payment plus your trade equity. Trade equity is what your current car is worth minus whatever you still owe on it. If your trade is worth 5,000 and you owe 2,000, you bring 3,000 of equity, and that adds to the car you can afford. The catch worth knowing is the other direction: if you owe more on your trade than it is worth, that is negative equity, and it works against you, lowering what you can afford because the shortfall has to be covered. The tool accounts for both, so enter what you owe honestly to get a real figure.

An example with real numbers

Say you are comfortable with 400 a month, you have 3,000 to put down, your trade is worth 5,000 and you still owe 2,000 on it, the rate is 7 percent, and the term is 5 years.

• Trade equity = 5,000 minus 2,000 = 3,000, so your cash in the deal is 3,000 down plus 3,000 equity = 6,000
• A 400 payment at 7 percent over 5 years supports a loan of about 20,200
• Add the 6,000 you bring, and you could afford a car worth about 26,200
• Total interest over the term would be about 3,800

So a payment that feels comfortable, plus the money you bring, points to a car around 26,200. Change the term or the rate and the budget moves, which is worth trying before you fall for a car at the top of the lot.

The payment is not the whole cost

One honest thing to hold onto. This tool sizes the car your loan payment can cover, but the payment is not the full cost of running a car. Insurance, fuel, tax, maintenance, and registration all arrive on top, month after month, whether or not you are thinking about them. So when the tool says you could afford a 26,000 car, read that as what the loan supports, not a signal to spend every spare dollar on the payment. Leaving room under that ceiling for the running costs is what keeps the car comfortable rather than tight, and a useful rule of thumb is to keep all your vehicle costs together well within your take-home pay.

The rate, and the figure you enter

The budget depends heavily on the interest rate you put in, and the rate you are offered depends on your credit, so the honest move is to enter the rate you would realistically get rather than the best advertised one. It is also worth knowing that a lender's APR runs a little above the plain interest rate because it includes fees, so the true cost is slightly higher than a rate alone suggests. Treat the result as a planning estimate, get a sense of your real rate before you shop, and you will walk in with a budget you can trust.

Questions people ask

How much car can I afford?

Work backwards from a monthly payment you are comfortable with. The loan that payment supports, plus your down payment and trade equity, is the price of car you can afford. This tool does that calculation for you.

What is trade equity?

It is your current car's value minus what you still owe on it. Positive equity adds to what you can afford; if you owe more than the car is worth, that negative equity works against you.

Should I spend right up to the figure it gives?

It is wiser not to. The figure covers the loan payment only, while insurance, fuel, tax, and upkeep land on top. Leaving room under the ceiling keeps the car affordable in real life.

What rate should I enter?

Enter the rate you would realistically qualify for, since your rate depends on your credit. Using an unrealistically low rate will overstate the car you can afford.

References

1. Consumer Financial Protection Bureau (CFPB), Auto loans consumer resources. https://www.consumerfinance.gov/consumer-tools/auto-loans/
2. Consumer Financial Protection Bureau (CFPB), Auto loans key terms (interest, APR, and amortization). https://www.consumerfinance.gov/consumer-tools/auto-loans/answers/key-terms/