Car Affordability Calculator: How Much Car Can You Actually Afford?

Run the sum the other way round

Almost every car calculator on the internet asks for a price and gives you a payment. That is the wrong direction for the decision you are actually making. You do not choose a car and then discover your budget; you have a budget, and you want to know what it reaches. Running the sum backwards also changes the conversation at the dealership, because you arrive with a price ceiling instead of a monthly figure that can be met by simply stretching the term.

The monthly payment on an amortised loan is the standard annuity formula, where P is the amount borrowed, n the number of monthly payments and rthe monthly rate — the APR divided by twelve and by a hundred:

The second line is the present value of an annuity: the lump sum today that is worth a stream of n payments of M. A zero-rate deal is the one case the formula cannot express, because it divides by zero — there, P is simply M × n. The settlement term matters because any balance still owed on your current car has to be paid off from the new loan, so it comes straight off what you can spend on the new one.

The payment is not the cost

This is the part most affordability calculators skip, and it is the reason people who “could afford the payment” end up unable to afford the car. Insurance renews. Tyres wear out in sets of four. The service interval arrives whether or not it is a good month. A resident’s parking permit is charged annually and forgotten eleven months of the year. None of these are optional extras; they are the cost of the car being on the road at all, and every one of them continues after the finance ends.

So the calculator takes them out of your budget first. Whatever is left is what the finance can claim, and it is usually a lot less than the number people have in their head. If your budget is genuinely all-in, that is the honest answer. If the remainder is too small to reach the car you wanted, the useful next move is not a longer loan — it is a car in a lower insurance group, or one that drinks less. The fuel cost calculator will turn your real weekly mileage and a car’s efficiency into the monthly figure to paste in here, for petrol, diesel, CNG or electric.

Each line behaves differently, which is worth knowing before you try to cut one:

Depreciation: the bill nobody sends you

For most cars bought new, depreciation is the single largest cost of ownership — larger than fuel, larger than insurance, often larger than the interest. It is also the only one that never appears on a bank statement, which is precisely why it gets left out of budgets. You pay it in one lump, years later, in the gap between what you paid and what someone gives you for it.

The calculator keeps it outside the monthly cash total and shows it as a separate line, so you can see both numbers honestly: what leaves your account, and what the car is really costing you. Treat the figure as a rough estimate and nothing more. It is a flat percentage of the purchase price per year, which is a simplification — real depreciation is front-loaded, steepest in the first year of a new car, and varies enormously between models, mileages, conditions and markets. Two cars at the same price can lose wildly different amounts. Nobody, including this page, can tell you what a specific car will be worth in four years; the only honest use of the number is to compare scenarios, not to predict a resale value.

Two practical consequences. First, buying a car a few years old lets somebody else absorb the steepest part of the curve, which is why the same monthly budget often reaches a much better car second-hand. Second, depreciation is why long loans are risky: if the car loses value faster than the loan is repaid, you spend years owing more than it is worth.

What 100 a month of payment actually borrows

This table is the borrowing power of a payment, computed with the formula above. Every cell is the loan that 100 a month supports — in whatever currency you use — at that rate and term. It scales linearly, so multiply by the payment you can actually manage: if 320 a month is left after running costs, multiply the cell by 3.2. The rates across the top are illustrative brackets for comparison, not offers, forecasts or averages; use the APR on your own quote.

Read across a row and you see what the rate costs you: moving from 0% to 16% cuts what the same payment can borrow by about a seventh over two years, rising to two fifths over seven. Read down a column and you see the seduction of the long term — the same 100 a month buys far more car over seven years than over two. It also buys far more interest, and seven years of a car you chose today. The loan calculator will amortise any of these month by month, and the EMI calculator does the same in EMI terms if that is the convention where you are.

20/4/10, and what a rule of thumb is for

You will meet the “20/4/10 rule” in almost every article on this subject: put 20% down, borrow over no more than 4 years, and keep total transport costs under 10% of gross income. It deserves the attention it gets, but it is a rule of thumb that circulates in consumer-finance writing, not a lending standard. No lender applies it, no regulator endorses it, and it was not derived from anything more rigorous than experience of what tends to go wrong.

What it is good for is catching the three failure modes at once. Too little deposit means immediate negative equity. Too long a term means paying for a car long after you have stopped enjoying it. Too large a share of income means every other goal in your life is queueing behind a depreciating asset. The calculator scores your figures against all three, and a cross on one leg is a prompt rather than a verdict — a 10% deposit on a cheap, reliable car with tiny running costs is a far better position than 20% down on something that eats tyres.

One note on the arithmetic: the 10% leg is usually quoted against gross income, while the share-of-income band in the results is measured against the take-home figure you enter, because that is the money that actually exists. If you enter net pay, the check is stricter than the original rule, not looser.

Rolling an old loan into a new one

If you still owe money on the car you are trading in, and the trade-in value is less than the settlement figure, the difference does not disappear — it gets added to the new loan. That is the settlement field in the calculator, and its effect is blunt: every unit of old debt you carry forward is a unit less of new car. Borrow 20,000 with 4,000 of it settling the last car and you have bought 16,000 of car while paying interest on 20,000.

Done once, it is survivable. Done every three years, it compounds into a permanent debt that outlives several cars, and the monthly payment never falls because there is always a balance rolling forward. If the calculator tells you the settlement is eating a large share of your borrowing, the cheapest move is almost always to keep the current car until the balance clears. Before committing to anything, it is worth checking that a car-sized payment still leaves room for a cash buffer, because a car with no fund behind it turns the first unexpected repair into card debt.

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