Car Affordability Calculator

When determining how much car you can afford, it's important to consider your overall financial picture, not just the monthly payment. A car purchase involves upfront costs, ongoing expenses, and opportunity costs.

The 20/4/10 Rule

A common guideline for car affordability is the 20/4/10 rule:

• 20% down payment: Put at least 20% down to reduce financing costs and avoid being underwater on your loan
• 4-year loan term: Keep the loan term to 4 years or less to minimize interest and depreciation overlap
• 10% of income: Limit your total transportation costs (payment, insurance, gas, maintenance) to no more than 10% of your gross income

Factors Affecting Affordability

• Current debt obligations: Existing loans, credit card debt, and other financial commitments reduce your capacity for a car payment
• Credit score: Better credit means lower interest rates, which increases affordability
• Income stability: A stable income source provides more confidence in taking on a longer-term financial commitment
• Total cost of ownership: Beyond the purchase price, consider insurance, fuel, maintenance, repairs, and depreciation
• Life changes: Anticipated changes like marriage, children, or moving may affect your future financial needs

Common Affordability Mistakes

• Focusing only on monthly payment: Extending a loan term reduces monthly payments but increases total cost
• Neglecting other expenses: Insurance, maintenance, and fuel can add significant costs to vehicle ownership
• Overspending on features: Luxury features add to the purchase price and often depreciate quickly
• Ignoring opportunity costs: Money spent on an expensive car could be invested elsewhere
• Emotional decisions: Making purchase decisions based on wants rather than needs and financial reality