What Is Car Payment Affordability?
Car payment affordability is the largest monthly car payment you can take on without squeezing the rest of your budget. It is worth working out before you shop: dealers often ask "what monthly payment are you looking for?", and a long loan can make almost any car look affordable while costing far more in interest.
The loan payment is only part of what a car costs each month. Fuel, insurance, maintenance and registration come on top, so a good rule sets a limit for all car costs together and keeps the payment below it.
Rules of thumb
- 20% for all car costs: keep the payment, fuel, insurance and upkeep together under 20% of your monthly take-home pay. This is the rule this calculator uses.
- 15% for a new car payment: within that 20%, keep a new car's loan payment to about 15% of take-home pay, leaving about 5% for running costs.
- 10% for a used car or a lease: older cars usually cost more to run and repair, so keep the payment to about 10% and leave 10% for running costs.
- The 20/4/10 rule: a stricter guideline that says put 20% down, borrow for no more than 4 years, and keep total car costs under 10% of gross (before-tax) income.
No rule fits everyone: if you have other large debts, or you are saving hard for a goal, aim lower.
How to Calculate the Car Payment You Can Afford
Start with the total you can spend on the car each month, then split it between the payment and the running costs:
For a used car or a lease, use 10% instead of 15%. What is left of the budget is for running costs (fuel, insurance and upkeep):
Example
A take-home pay of $5,000 a month:
- Total car budget = $5,000 × 20% = $1,000.00 a month
- New car payment = $5,000 × 15% = $750.00, leaving $250.00 for fuel, insurance and upkeep
- Used car or lease payment = $5,000 × 10% = $500.00, leaving $500.00 for running costs
How to Use the Car Loan Payment Affordability Calculator
"I take home $5,000 a month. How big a car payment can I afford, and how much should I keep for fuel and insurance?" This calculator answers that.
Let's enter the numbers for this example. They are already filled in when the calculator opens, so you can follow along and then change them to your own.
- Take-Home Pay: Enter 5,000, which is your monthly pay after taxes. It must be greater than 0.
- Car Type: Leave it at New car, which sets the payment at 15% of your pay. Pick Used car or lease to use 10%.
Calculate and Reset
Click Calculate to see your results. If the pay box has a problem, such as a letter instead of a number, a message pops up under it instead. With the default numbers you get:
- Your Results: a short summary in words: the $1,000.00 total car budget, the $750.00 payment and the $250.00 left for running costs.
- Car Payment You Can Afford: the headline number, $750.00.
- Total Car Budget, Fuel, Insurance & Upkeep, Payment Share of Pay and Yearly Car Budget: $1,000.00, $250.00, 15% and $12,000.00 a year.
- Where every $100 of your pay goes: a grid of 100 squares standing for your take-home pay, with the car payment (teal) and running costs (amber) coloured in.
- What car does this payment buy?: a button that opens the Automobile Affordability calculator with your pay and budget filled in, to turn the payment into a car price.
- Share Results: a link that opens this calculator with your numbers filled in. Copy it, or share it on Facebook or X.
Amounts of $1 million or more are shortened, for example $1.25M. Click Reset to put the boxes back to $5,000 and New car and show the default results again.