Car Affordability Calculator (20/4/10 Rule)
How much car can I afford? Set a share of your income for car costs, subtract insurance and fuel, and see the car price that the remaining payment can support. It follows a percent-of-income rule such as the common US 20/4/10 guideline, so it works backwards from your budget. If you already have a price in mind and want the payment, use the car payment calculator instead.
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Formula
- Total car budget =
monthly income x budget% - Loan payment =
budget - insurance - fuel(never below 0) - Loan amount =
payment x (1 - (1 + r)^-n) / r, withr = APR / 12, orpayment x nat 0% - Maximum price =
loan amount / (1 - down payment%)
A common US guideline is the 20/4/10 rule (not a universal standard; adjust the inputs for your country): 20% down, a 4-year (48 month) loan, and 10% of gross income for all car costs. It is a rule of thumb, not financial advice. Taxes and fees are not included in the price.
Worked example
Income 5,000 a month, budget 10%, insurance 120, fuel 150, 20% down, 6% APR, 48 months.
- Budget = 5,000 x 10% = 500; payment = 500 - 120 - 150 = 230
- Annuity factor = (1 - 1.005^-48) / 0.005 = 42.5803, so loan = 230 x 42.5803 = 9,793.47
- Price = 9,793.47 / 0.8 = 12,241.84; down payment = 2,448.37
Use this when
You are choosing a price range before shopping, or checking whether a car you like fits a sensible share of income. Try 10 percent and 15 percent to see the range. Because running costs come out first, a thirsty or expensive-to-insure car lowers the price you can afford more than you might expect.
How it differs from nearby pages
The car payment calculator starts from a price and returns a payment. This page starts from income and returns a price. The total cost of ownership calculator adds depreciation and upkeep. The lease vs buy calculator compares two ways to pay.
Common mistakes
- Using net income when the rule is stated on gross income.
- Forgetting sales tax and registration, which the price here does not include.
- Picking a long loan term to make the number bigger. A longer term raises total interest.
- Treating a guideline as a rule for your own situation.
Frequently asked questions
What is the 20/4/10 rule?
It is a common US rule of thumb, not a universal standard: put 20% down, finance for no more than 4 years, and keep total car costs (payment, insurance, fuel) under 10% of gross income. Enter 20, 48 months and 10% to apply it. It is a guideline, not advice for your situation.
How is the maximum price worked out?
Budget = income x percentage. Subtract insurance and fuel to get the loan payment. The loan you can carry is payment x (1 - (1 + r)^-n) / r, and the price is the loan divided by (1 - down payment share). With 5,000 income, 230 left over, 6% and 48 months, the loan is 9,793 and the price 12,242.
Why is my result zero?
If insurance and fuel already use up the whole budget, nothing is left for a loan payment. Raise the percentage, lower the running costs or choose a cheaper kind of car. For example, a 500 budget with 600 of running costs leaves 0.
Does the price include taxes and fees?
No. The price here is what the loan and down payment cover, so leave room for sales tax, registration and fees. If those add about 8%, divide the result by 1.08 to estimate the sticker price you can afford.
How much car can I afford with a 6,000 monthly income?
With the default 10 percent budget, 120 insurance, 150 fuel, 20 percent down, 6 percent APR and 48 months, you have a 600 budget and a 330 payment. That supports a loan of 14,051.50 and a price of 17,564.38.
How much car can I afford at 15% of a 4,000 income?
With 100 insurance, 120 fuel, 10 percent down, 7 percent APR and 60 months, the budget is 600 and the payment is 380. The loan is 19,190.76 and the maximum price 21,323.06, with 2,132.31 down.
How do insurance and fuel costs change what I can afford?
They come out of the budget before the loan payment. Raising insurance from 120 to 220 on the default inputs cuts the payment from 230 to 130 and the maximum price from 12,241.84 to 6,919.30.