This free online Car Affordability Calculator will calculate the size of the loan and the price of the car you can afford based on the amount of the monthly payment you can afford.
Note: If you are the type of person who doesn't painstakingly track your expenses and carefully budget your income, the car affordability calculator on this page will be of no use to you. Why? Because you will only be able to make a guess as to how much of a monthly payment you can afford. And "guessing" can be extremely hazardous to your financial health.
Imagine you are standing on the railing of a bridge and peering down at a rocky river bottom several hundred feet below.
Further imagine that you just haven't had the time (too many good shows on TV?) to measure the length of the bungee cord that connects you to the bridge. Nor have you had the time to measure the distance from the bridge down to the rocky river bottom.
But hey, the commissioned salesperson you bought the bungee cord from told you not to worry about the length and to just go have fun. And they of all people should know what's best for you, right?
So would you go ahead and jump? Of course not.
Comparatively speaking, this is how most people jump into financial obligations. Because they don't take the time to track and accurately forecast their income and expenses, they end up relying on commissioned salespeople to advise them on whether or not to jump. As a result they don't have a clue as to whether or not the next jump will end up causing their financial lives to go "splat" on the "rocky bottom."
The only way you can accurately predict how much car you can afford is to know exactly what your life is costing you on a month to month basis. But the costs you need to be tracking don't all just show up as monthly bills in your mailbox. Many of the costs you need to be tracking are accumulating behind the scenes.
Everything you own that can wear out IS wearing out at this very moment. These are all assets that will need to be re-purchased at some point in the future. Therefore, when trying to determine how much you can afford to spend on something, it's not enough to simply track the obvious monthly cash inflows and outflows (most people don't even do that much). You also need to track the rate at which what you own is wearing out so you can be setting aside funds to replace all of those assets as they need to be replaced.
For example, if you own a home you should be setting aside funds to replace all furniture, electronics, fixtures, appliances, roofing, flooring, paint, heating and cooling equipment, lawn and garden machines, and the list goes on.
Well, and I know this may sound ridiculous to you, but just like successful businesses do, you need to make a list of everything that will require replacement.
Then for each item listed you need to estimate how many months (years x 12) the asset will last and how much it will cost to replace the asset.
Next, divide the replacement cost of each asset by the number of months you estimate it will last.
Finally, total up all of the monthly replacement estimates to see how much you should be setting aside each month.
If you choose NOT to acknowledge or plan for these depreciation expenses, it doesn't change the fact that they are accumulating behind the scenes. And unless you are aware of how much these costs are on a monthly basis, you will have no reliable basis for determining just how much car you can afford.
In fact, if you will need to borrow money to purchase a car, this tells me that you have not been setting aside your current car's monthly depreciation expense. Otherwise you would be able to pay cash for the car you are purchasing -- which would likely put an extra $2,000 to $4,000 dollars in your pocket (or into your investments) from the interest cost savings.
But here's the real kicker. If you are borrowing money to purchase a car (an asset that wears out), then in order to get ahead you will need to set aside (deposit to "next car" savings account) the monthly depreciation expense of the car -- which is an amount roughly equal to the monthly car loan payment you will already be making.
In other words, if you are borrowing money to purchase a car, then whatever monthly car payment you think you can afford would need to be cut at least in half before you enter the amount into the car affordability calculator.
I say "at least in half" because this may still be more than you can actually afford if you are not setting aside the monthly depreciation expenses of all of your other depreciable assets.
With that, let's use the Car Affordability Calculator to calculate the size of the loan and purchase price you may be able to afford based on the monthly payment you think you can afford.
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Monthly payment amount you can afford: The monthly payment you feel you could afford after accounting for the ongoing ownership costs that will come with purchasing the vehicle, such as gas, insurance, maintenance, repairs, licensing, sheltering, and so on. If you would like help in determining these ownership costs, please visit the Car Buying Calculator. As noted in the explanation above the car affordability calculator, if you are borrowing for the car, then the amount you enter should be half of what you think you can afford.
Down payment amount you can afford: The amount you feel you can pay down on the car purchase. If you have no money for a down payment, enter a zero. If your are buying a new car and the total of of your down payment and trade-in allowance doesn't add up to 20% or more of the purchase price, this may cause you to be "upside down" in the car loan (see the explanation on the Automobile Finance Calculator if you are not familiar with what that means). In any case, the car affordability calculator will add this to the loan amount to determine and affordable car price.
Trade-in allowance: If you are trading in a vehicle, enter the trade-in allowance on this line. If no trade-in, enter a zero or leave blank.
Amount still owed on trade-in: If you are trading in a vehicle and still owe money on that vehicle, enter the amount you owe on this line. If no trade-in or no money is owed on the trade-in, leave blank or enter a zero. The car affordability calculator will subtract this figure from the trade-in allowance and add the result to loan amount to determine and affordable car price.
Cash rebate to be added to down payment: If the vehicle you are purchasing comes with a cash rebate, and you would like to apply the rebate to the purchase, enter the amount on this line. Otherwise leave blank. The car affordability calculator will add this to the loan amount to determine and affordable car price.
Expected annual interest rate: Enter the annual interest percentage you will be charged for the loan. Enter as a percentage (for .08, enter 8%).
Car loan term: The term of the loan in number of months (number of payments). 1 year = 12, 2 years = 24, 3 years = 36, 4 years = 48, 5 years = 60, etc.).
Sales tax percentage: The combined total of all applicable sales tax percentages (state, local, etc.). Enter as a percentage (for .07, enter 7%). The car affordability calculator will subtract the dollar amount of the sales tax from the car price that was calculated to be an affordable car price.
Amortization schedule: This is the breakdown of each periodic payment made to repay the amount borrowed. Each line of the amortization schedule shows the total amount paid for the period, along with the portion that went to pay down the principal and the amount that was used to pay the current period interest charges. The last column is the new balance owed following that period's payment (previous balance minus principal portion of current payment). The car affordability calculator allows you to choose whether or not you want the results to include a monthly amortization schedule.
You may be able to afford a vehicle that costs: Based on your entries, this is the total of the loan amount you can afford, plus any entered down payment, net trade-in allowance, and rebate amounts, minus any applicable sales taxes. As noted in the explanation above the car affordability calculator, this is all based on whether or not you can actually afford the payment amount you entered.
Loan amount you would need to qualify for: Based on your entries (monthly payment you can afford, the annual interest rate, and the number of payments), this is the loan amount you would need to qualify for to purchase the vehicle price listed in the field above this one.
Interest cost of loan: This is how much interest you will end up paying between the start of the loan and after making your final monthly payment. Please keep in mind that these are costs that could have been avoided (and therefore invested for profit) had you paid cash for the car.