If you are planning to finance your car purchase using an auto loan, this calculator will be very useful. It can tell you the maximum price you can afford based on your inputs. It also tells you how much you need to borrow.
Car Loan Affordability based on Monthly Payments
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Car Loan Affordability Calculator Results
Car Price Breakdown
How to use the car loan calculator
- Enter the amount you’ve budgeted for the down payment. It should be at least 20% of the purchase price of the car. That should help keep your interest rate low.
- Enter the amount you’ve budgeted for the monthly payment. You don’t want this amount to be more than 10 to 15% of your monthly after-tax income.
- Select a term for the car loan. Typically, lower the term, lower are your financing costs. I recommend 36 months or 3 years.
- Finally, enter your interest rate and click the calculate button to get the maximum car price you can afford.
Determine how much car you can afford
Here are some tips on determining how much you can afford to spend on your car purchase. Read more about how to determine your car affordability by reading my comprehensive article. But first,
- Set a monthly budget for car payments – Try to keep your monthly payment below 10 to 15% of your monthly after-tax income. For example, if your monthly after-tax income is $4,000, try to keep your car payment below $400. The lower the better. Anything you don’t put toward your car can be invested and can help grow your wealth. Also don’t forget to budget for any other car-related monthly expenses – repairs, fuel, maintenance, etc. and reduce your monthly payment by that amount if you don’t want to exceed your car-related budget.
- Put at least 20% down on a new car – Your down payment is one of many factors that will determine how much you will pay in interest over the life of the auto loan. I recommend putting at least 20% down.
- Select a shorter term – Term of your auto loan is the period over which you will continue making monthly payments toward the loan until you’ve repaid the entire loan amount. Depending on the lender, your term may be between 36 months (3 years) and 72 months (6 years). The longer the term, the higher is your interest rate. So pay attention to how much you will pay in interest over the life of the loan.
- Improve your credit score – Your credit score will determine your APR or the interest rate lenders will charge you on your auto loan. So try to improve your credit score before you apply for a car loan financing.
- Additional costs to consider before determining a target purchase price – Don’t forget to consider these additional costs at the time of purchase. Some costs to consider include sales tax (typically between 5 and 10% of your purchase price), registration fees, and excise tax. Also, there may be other costs depending on where you live.
- Shop around for low interest rate – Check with multiple lenders. They offer a wide range of interest rates or APRs. Typically, credit unions offer a low rate as well. Get multiple quotes before making a decision.
Finally, do your research before making that purchase. A car is probably your first biggest purchase. Definitely check out this comprehensive article on car affordability here.