How Much Car Can You Afford? A Practical Guide
A car is typically the second-largest purchase most people make. But dealership financing and low monthly-payment focus can obscure the true cost. Here's how to calculate what you can genuinely afford.
The 20/4/10 Rule
A common guideline: put 20% down, finance for no more than 4 years, and keep total monthly vehicle expenses (loan + insurance) under 10% of your gross monthly income. This keeps depreciation from crushing your equity and limits how much of your budget goes to transportation.
True Cost of Car Ownership
The purchase price is just the beginning. Add insurance (~$1,500–$2,500/year on average), fuel ($1,200–$3,000/year), maintenance and tires ($500–$1,500/year), registration fees, and depreciation (typically 15–25% in year one). The affordability calculator factors all these in.
New vs. Used
New cars depreciate ~20% in year one and another 15% in year two. A 2-year-old certified pre-owned vehicle has already absorbed that depreciation hit. If budget is tight, a reliable used car with lower depreciation often provides better value.
How to Use the Calculator
Enter your target monthly payment or total budget, interest rate from your lender or credit union, and loan term. The calculator shows the maximum purchase price you should consider, accounting for down payment and trade-in value.
Try the Car Affordability Calculator
Find out the maximum car price you can afford based on the 15% of income guideline.
Open Calculator →Frequently Asked Questions
How much should I put down on a car?
At minimum 10%, ideally 20%. A larger down payment lowers your monthly payment, reduces total interest paid, and protects against being 'underwater' (owing more than the car is worth).
Is a 72-month or 84-month loan a good idea?
Long terms lower monthly payments but dramatically increase total interest and keep you underwater longer as the car depreciates. Try to keep terms to 48–60 months.
Should I finance through the dealer or my bank?
Always get pre-approved by your bank or credit union first. Dealer financing is often competitive for buyers with excellent credit, but having a pre-approval gives you negotiating power.