Car Affordability Calculator
A car affordability calculator determines how much car you can afford based on your income, down payment, and desired payment. Financial experts recommend keeping total car costs under 15-20% of your take-home pay.
The 20/4/10 Rule
The 20/4/10 rule provides a guideline for car purchases:
- 20% minimum down payment
- 4 year maximum loan term
- 10% maximum of gross income for total car costs (payment + insurance)
Car Affordability by Monthly Income
| Monthly Income | Max Payment (10%) | Max Payment (15%) | Affordable Car (5yr, 7%) |
|---|---|---|---|
| $3,000 | $300 | $450 | $15,000 - $22,500 |
| $4,000 | $400 | $600 | $20,000 - $30,000 |
| $5,000 | $500 | $750 | $25,000 - $37,500 |
| $6,000 | $600 | $900 | $30,000 - $45,000 |
| $8,000 | $800 | $1,200 | $40,000 - $60,000 |
Car Affordability Calculator Implementation
``javascript
function calculateCarAffordability(monthlyIncome, maxPaymentPercent, rate, termYears, downPayment = 0) {
const maxPayment = monthlyIncome * (maxPaymentPercent / 100);
const monthlyRate = rate / 100 / 12;
const payments = termYears * 12;
// Calculate max loan from payment
const maxLoan = maxPayment * (1 - Math.pow(1 + monthlyRate, -payments)) / monthlyRate;
const maxCarPrice = maxLoan + downPayment;
return {
maxPayment: maxPayment.toFixed(2),
maxLoan: maxLoan.toFixed(2),
maxCarPrice: maxCarPrice.toFixed(2),
totalCost: (maxPayment * payments + downPayment).toFixed(2)
};
}
console.log(calculateCarAffordability(5000, 10, 7, 5, 5000));
// { maxPayment: '500.00', maxLoan: '25176.49', maxCarPrice: '30176.49' }
``
Total Cost of Ownership
Remember that car payments aren't your only cost. Include insurance, gas, maintenance, registration, and depreciation in your budget. A cheaper reliable car often costs less than an expensive car with high maintenance.
Where the Money Goes
On $35,000 at 6% over 5 years, paying $677 a month:
| Point | Principal repaid | Interest paid | Balance |
|---|---|---|---|
| Year 1 | $3,048 | $1,012 | $31,952 |
| Year 1 | $7,794 | $2,356 | $27,206 |
| Year 3 | $16,193 | $4,106 | $18,807 |
| Year 4 | $25,245 | $5,204 | $9,755 |
| Year 5 | $35,000 | $5,599 | $0 |
What a Rate Change Costs
| Rate | Monthly | vs 6% | Total repaid |
|---|---|---|---|
| 5.00% | $660 | -$16 | $39,630 |
| 5.50% | $669 | -$8 | $40,112 |
| 6.00% | $677 | ā | $40,599 |
| 6.50% | $685 | +$8 | $41,089 |
| 7.00% | $693 | +$16 | $41,583 |
What an Extra Payment Buys
Every dollar above the required $677 goes entirely to principal, which removes all the future interest that principal would have accrued:
| Extra per month | New payment | Paid off in | Interest saved | Time saved |
|---|---|---|---|---|
| $50 | $727 | 4 yr 8 mo | $456 | 4 months |
| $100 | $777 | 4 yr 4 mo | $842 | 8 months |
| $250 | $927 | 3 yr 6 mo | $1,711 | 18 months |
| $500 | $1,177 | 2 yr 9 mo | $2,610 | 27 months |
Before Paying Extra
- Check for a prepayment penalty. Uncommon on mortgages now, still present on some auto
- Tell the servicer to apply it to principal. Many default to holding it as the next
- Compare against the alternative. Paying down 6% debt is a guaranteed
- Keep the emergency fund. Money paid into a loan is not retrievable without