Determining how much loan you can afford is a crucial step before applying for one, whether it's for a mortgage, a car, or a personal loan. Several factors influence your borrowing capacity, and this calculator helps you estimate it.
Key Factors:
Monthly Income: This is the primary source of funds for repaying any loan. Lenders will assess your income to gauge your ability to manage new debt.
Existing Monthly Debt Payments: This includes minimum payments on credit cards, student loans, car loans, and any other recurring debt obligations. Lenders use this to calculate your Debt-to-Income (DTI) ratio.
Interest Rate: A higher interest rate means you'll pay more in interest over the life of the loan, reducing the principal amount you can borrow for the same monthly payment.
Loan Term: A longer loan term typically allows for lower monthly payments, potentially increasing the amount you can borrow. However, you'll pay more interest overall.
How the Calculation Works:
This calculator uses a common guideline, often referred to as the 28/36 rule (though simplified here for a single loan affordability focus). It estimates the maximum monthly payment you might comfortably afford based on your income and existing debts, and then determines the maximum loan principal you could take on with that payment, considering the interest rate and loan term. A general rule of thumb is that your total debt obligations (including the new loan payment) should not exceed 36% of your gross monthly income, and your housing-related costs (including mortgage principal, interest, taxes, and insurance) should ideally not exceed 28% of your gross monthly income. This calculator focuses on the total loan principal you could afford given a target monthly payment.
Disclaimer: This calculator provides an estimate only and is not a loan approval or offer. Actual loan amounts and terms will depend on lender policies, your credit score, and a full financial assessment.
function calculateLoanAffordability() {
var monthlyIncome = parseFloat(document.getElementById("monthlyIncome").value);
var existingDebts = parseFloat(document.getElementById("existingDebts").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
if (isNaN(monthlyIncome) || monthlyIncome <= 0) {
resultDiv.innerHTML = "Please enter a valid monthly income.";
return;
}
if (isNaN(existingDebts) || existingDebts < 0) {
resultDiv.innerHTML = "Please enter a valid amount for existing monthly debts.";
return;
}
if (isNaN(interestRate) || interestRate 100) {
resultDiv.innerHTML = "Please enter a valid annual interest rate between 1% and 100%.";
return;
}
if (isNaN(loanTerm) || loanTerm <= 0) {
resultDiv.innerHTML = "Please enter a valid loan term in years.";
return;
}
// Using a simplified affordability guideline.
// A common guideline is to keep total debt payments (including the new loan)
// below 36% of gross monthly income.
// Let's assume a maximum of 36% for all debt, and subtract existing debts.
var maxTotalMonthlyPayment = monthlyIncome * 0.36;
var availableForNewLoan = maxTotalMonthlyPayment – existingDebts;
if (availableForNewLoan <= 0) {
resultDiv.innerHTML = "Based on your income and existing debts, you may not be able to afford an additional loan payment at this time.";
return;
}
// Calculate maximum loan principal using the loan payment formula (M)
// M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
// Where:
// M = Monthly Payment (availableForNewLoan)
// P = Principal Loan Amount (what we want to find)
// i = Monthly interest rate (annual rate / 12)
// n = Total number of payments (loan term in years * 12)
var monthlyInterestRate = (interestRate / 100) / 12;
var numberOfPayments = loanTerm * 12;
// Rearrange the formula to solve for P:
// P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
var numerator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
if (denominator === 0) {
resultDiv.innerHTML = "Calculation error: Denominator is zero. Please check inputs.";
return;
}
var maxLoanPrincipal = availableForNewLoan * (numerator / denominator);
// Format the output
var formattedMaxLoanPrincipal = maxLoanPrincipal.toLocaleString(undefined, {
style: 'currency',
currency: 'USD'
});
var formattedMonthlyPayment = availableForNewLoan.toLocaleString(undefined, {
style: 'currency',
currency: 'USD'
});
resultDiv.innerHTML =
"Estimated Maximum Loan Principal You Can Afford: " + formattedMaxLoanPrincipal + "" +
"(Based on an estimated maximum monthly payment of " + formattedMonthlyPayment + ")";
}