Understanding Car Affordability: Beyond Just the Monthly Payment
Buying a car is a significant financial decision. While focusing on the monthly payment is common, true car affordability involves a broader look at your overall financial picture. The Edmunds Car Affordability Calculator helps you estimate how much car you can realistically afford by considering your income, existing debts, and the total cost of car ownership, not just the loan payment.
How the Calculator Works: The Math Behind Affordability
This calculator uses a common financial guideline and standard loan amortization formulas to estimate your maximum affordable car price.
Step 1: Determine Available Funds for Car Ownership
A widely accepted rule of thumb is that your total monthly vehicle expenses (loan payment, insurance, maintenance, fuel) should not exceed 10-20% of your gross monthly income. However, for a more conservative and realistic approach that accounts for existing financial obligations, this calculator focuses on the portion of your Net Monthly Income that is left after paying your essential debts.
The calculator first identifies the funds available for car-related expenses by subtracting your Total Monthly Debt Payments from your Monthly Net Income. This difference represents the maximum amount you can allocate towards your new car payment, insurance, and maintenance/fuel.
Available Funds = Monthly Net Income - Total Monthly Debt Payments
Step 2: Account for Ongoing Car Costs
Beyond the loan payment, a car incurs other regular costs. The calculator includes your estimated Monthly Car Insurance and Estimated Monthly Maintenance & Fuel Costs. These are subtracted from the Available Funds to determine the maximum monthly payment you can afford for the car loan itself.
Maximum Monthly Loan Payment = Available Funds - Estimated Monthly Car Insurance - Estimated Monthly Maintenance & Fuel Costs
Step 3: Calculate Maximum Loan Amount
Using the Maximum Monthly Loan Payment, the desired Loan Term (in years), and the Estimated Annual Interest Rate, we can calculate the maximum loan amount you can take out. This is done using the present value of an ordinary annuity formula, adapted for loan calculations:
n = Total Number of Payments (Loan Term in years * 12)
The formula for the maximum loan principal (L) is:
L = P * [1 - (1 + r)^-n] / r
If the interest rate is 0, the formula simplifies to:
L = P * n
Step 4: Determine Maximum Car Price
Finally, to find the maximum car price you can afford, we add your Car Down Payment to the maximum loan amount calculated in Step 3.
Maximum Car Price = Maximum Loan Amount (L) + Car Down Payment
Key Takeaways and Usage:
Holistic View: This calculator encourages a comprehensive look at affordability by including all significant car-related expenses.
Realistic Budgeting: It helps set a realistic budget before you start shopping for cars, preventing overspending and financial stress.
Consider All Inputs: Accurate estimates for income, existing debts, insurance, and running costs are crucial for a reliable result.
Interest Rates Matter: Even small variations in interest rates can impact the total loan amount and thus the car price you can afford.
Down Payment Impact: A larger down payment directly increases the maximum car price you can afford.
Use this tool as a starting point to understand your car-buying capacity. Always consult with a financial advisor for personalized advice and consider unexpected expenses.
function calculateAffordability() {
var monthlyIncome = parseFloat(document.getElementById("monthlyIncome").value);
var currentDebtObligations = parseFloat(document.getElementById("currentDebtObligations").value);
var carDownPayment = parseFloat(document.getElementById("carDownPayment").value);
var loanTermYears = parseFloat(document.getElementById("loanTerm").value);
var annualInterestRate = parseFloat(document.getElementById("estimatedInterestRate").value);
var carInsuranceEstimate = parseFloat(document.getElementById("carInsuranceEstimate").value);
var estimatedMaintenanceFuel = parseFloat(document.getElementById("estimatedMaintenanceFuel").value);
var resultValue = document.getElementById("result-value");
// — Input Validation —
if (isNaN(monthlyIncome) || monthlyIncome < 0) {
alert("Please enter a valid monthly net income.");
return;
}
if (isNaN(currentDebtObligations) || currentDebtObligations < 0) {
alert("Please enter valid total monthly debt obligations.");
return;
}
if (isNaN(carDownPayment) || carDownPayment < 0) {
alert("Please enter a valid down payment amount.");
return;
}
if (isNaN(loanTermYears) || loanTermYears <= 0) {
alert("Please select a valid loan term.");
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
alert("Please enter a valid estimated annual interest rate.");
return;
}
if (isNaN(carInsuranceEstimate) || carInsuranceEstimate < 0) {
alert("Please enter a valid estimated monthly car insurance cost.");
return;
}
if (isNaN(estimatedMaintenanceFuel) || estimatedMaintenanceFuel < 0) {
alert("Please enter valid estimated monthly maintenance and fuel costs.");
return;
}
// — Calculations —
// Step 1: Determine Available Funds for Car Ownership
var availableFunds = monthlyIncome – currentDebtObligations;
// Ensure available funds are not negative
if (availableFunds < 0) {
availableFunds = 0;
}
// Step 2: Account for Ongoing Car Costs
var maxMonthlyLoanPayment = availableFunds – carInsuranceEstimate – estimatedMaintenanceFuel;
// Ensure max monthly loan payment is not negative
if (maxMonthlyLoanPayment < 0) {
maxMonthlyLoanPayment = 0;
}
// Step 3: Calculate Maximum Loan Amount
var maxLoanAmount = 0;
var numberOfPayments = loanTermYears * 12;
if (annualInterestRate === 0) {
maxLoanAmount = maxMonthlyLoanPayment * numberOfPayments;
} else {
var monthlyInterestRate = annualInterestRate / 100 / 12;
// Using the present value of an annuity formula for loan principal
maxLoanAmount = maxMonthlyLoanPayment * (1 – Math.pow(1 + monthlyInterestRate, -numberOfPayments)) / monthlyInterestRate;
}
// Handle potential NaN from calculations if inputs were borderline invalid but passed checks
if (isNaN(maxLoanAmount) || maxLoanAmount < 0) {
maxLoanAmount = 0;
}
// Step 4: Determine Maximum Car Price
var maxCarPrice = maxLoanAmount + carDownPayment;
// Display result
resultValue.textContent = "$" + maxCarPrice.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
}