Enter the maximum monthly payment you can afford, the term of the loan, and the interest rate of the loan into the car affordability calculator. The calculator will return the maximum car value you can afford.

Car Affordability Formula

The following formula is used to calculate the maximum value of a car you can afford.

MV = MP * L – MP*I/100*L/12

  • Where MV is the max value of a car
  • MP is the maximum monthly payment
  • L is the length of the loan in months
  • I is the yearly interest rate of the loan

Car Affordability Definition

Car affordability is the recommended total value of a car that a person can afford based on their income.

How much can I afford to spend on a car?

How to calculate the maximum car value you can afford.

  1. First, determine your maximum monthly payments

    In general, this should not exceed 12% of your pretax income. For example, if you make $1,000.00 per month, your car payment should not exceed $120/month.

  2. Next determine the length of the loan you will take out for the car

    The longer the loan the lower the monthly payments, but the higher the interest rate.

  3. Determine the interest rate of the loan

    This is typically anywhere from 3-7% depending on your credit score.

  4. Calculate the max value car you can afford

    Enter the information from steps 1-3 into the calculator to determine the max value of a car you can afford.

FAQ

How expensive a car can i afford?

The most expensive car you can afford is the most money you are willing to pay for it. Most people suggest less than 12% of your income, but you could spend more depending on your financial needs.

What term length should i take out for the loan?

This is also a personalized question. Longer loans result in fewer monthly payments, but higher interest rates.

Car Affordability Calculator
car affordability formula