Car Affordability Calculator Formula
Understand the math behind the car affordability calculator. Each variable explained with a worked example.
Formulas Used
Max Loan Amount
max_loan = monthly_rate > 0 ? monthly_budget * (1 - pow(1 + monthly_rate, -loan_term_months)) / monthly_rate : monthly_budget * loan_term_monthsMax Car Price
max_car_price = max_loan + down_paymentTotal Cost (payments + down)
total_cost = monthly_budget * loan_term_months + down_paymentVariables
| Variable | Description | Default |
|---|---|---|
monthly_budget | Monthly Budget for Car Payment(USD) | 500 |
annual_rate | Interest Rate(%) | 6.5 |
loan_term_months | Loan Term(months) | 60 |
down_payment | Down Payment(USD) | 3000 |
monthly_rate | Derived value= annual_rate / 12 / 100 | calculated |
How It Works
Car Affordability Formula
Max Loan = Payment × [1 - (1+r)^-n] / r
Max Car Price = Max Loan + Down Payment
A common rule is to keep your car payment under 10-15% of your monthly take-home pay.
Worked Example
$500/month budget, 6.5% rate, 60 months, $3,000 down.
monthly_budget = 500annual_rate = 6.5loan_term_months = 60down_payment = 3000
- 01Monthly rate = 6.5% / 12 = 0.5417%
- 02Max loan = $500 × (1 - 1.005417^-60) / 0.005417 = $25,557
- 03Max car price = $25,557 + $3,000 = $28,557
Frequently Asked Questions
What is the 20/4/10 rule for car buying?
Put 20% down, finance for no more than 4 years, and keep total transportation costs under 10% of gross income.
Learn More
Guide
How to Calculate Car Loan Payments
Learn how to calculate car loan payments, understand total loan cost, compare financing options, and avoid common auto financing mistakes that cost you thousands.
Ready to run the numbers?
Open Car Affordability Calculator