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
Ready to run the numbers?
Open Car Affordability Calculator