Car Affordability Calculator
Find out how much car you can truly afford using the 20/4/10 rule and the 15% income guideline — before you walk into a dealership.
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How Much Car Can You Afford?
Most people overestimate what they can afford on a car because they focus only on whether they can make the monthly payment. The monthly payment is not the measure of affordability — your total financial picture is.
The 20/4/10 Rule
The 20/4/10 rule is the gold standard for car buying budgets:
- 20% — Put at least 20% down to avoid being underwater and reduce interest
- 4 years — Finance for no more than 4 years (48 months) to limit interest and depreciation exposure
- 10% — Keep monthly vehicle expenses (payment + insurance) at or below 10% of gross monthly income
This rule is intentionally conservative. Following it keeps your car costs manageable and protects you from a bad financial situation if you lose your job or face unexpected expenses.
The 15% Guideline (More Flexible)
Some financial planners allow up to 15% of gross monthly income for total car costs. This gives more flexibility but still provides a guardrail against over-spending on depreciating assets.
The 35% Annual Income Heuristic
Another quick rule: your car's purchase price should not exceed 35% of your gross annual income. On a $70,000 salary, that's $24,500. This doesn't mean you should spend that much — it's simply a ceiling.
Why Car Dealers Focus on Monthly Payment
Dealers are trained to anchor negotiations on monthly payment rather than total price. A lower monthly payment achieved through a longer loan term can mean thousands more in total interest — and years more exposure to depreciation. Always negotiate on total price first, then discuss financing separately.
Frequently Asked Questions
Should I include insurance in my car budget?
Absolutely. Insurance is a non-negotiable monthly cost that varies by vehicle, driver age, location, and history. Get insurance quotes on any vehicle you're considering before buying — the difference between a sports car and a sedan can be $100–$200/month.
What if I can't put 20% down?
Even 10% down significantly reduces your loan amount and underwater risk. At minimum, ensure your down payment covers the first-year depreciation (typically 20–25%) so you don't immediately owe more than the car is worth.
Is it smarter to buy used?
For most people, yes. A 2–3 year old vehicle has absorbed 40–50% of its total depreciation, yet still has years of reliable life ahead. You can often get significantly more car for the same budget buying used vs. new.
