Car Affordability Calculator
Estimate the maximum car price you can finance given your income, budget percentage, loan term, and APR.
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What this tool does
This calculator uses reverse amortisation to determine the maximum car purchase price sustainable within a given monthly payment budget. Enter your net monthly income, the percentage you wish to allocate to car payments, the loan term in months, and the annual percentage rate (APR). The tool applies the present-value formula for an annuity to compute the principal that corresponds to your target monthly payment.
How the car affordability calculator works
The calculator first determines your available monthly payment by multiplying your net monthly income by the budget percentage. It then applies reverse amortisation—solving the standard loan amortisation equation backward—to find the largest principal (car price) that can be financed with that payment over the specified term and APR. The result represents the maximum purchase price, assuming the entire amount is financed and no down payment is applied.
The formula
The tool computes M = monthly_income × percent_of_income / 100, then applies:
P = M × [(1 + r)n − 1] / [r × (1 + r)n]
where r is the monthly interest rate (APR / 100 / 12) and n is the term in months. When APR is zero, the formula simplifies to P = M × n. Total interest paid equals (M × n) − P.
Where this method is most accurate
The calculation assumes a fixed-rate loan with equal monthly payments and no fees, balloon payments, or early-settlement adjustments. It does not account for taxes, registration, insurance, maintenance, or any down payment. Accuracy is highest when the loan structure matches standard amortisation with consistent compounding periods. Variable-rate products or promotional zero-percent periods will produce different real-world outcomes.
What this tool does not do
This tool does not incorporate jurisdiction-specific taxes, dealer fees, trade-in values, or insurance premiums. It does not assess creditworthiness, verify income, or recommend a specific budget percentage. The calculator provides a mathematical ceiling based solely on the inputs; actual affordability depends on other monthly obligations, savings goals, and individual financial circumstances not captured in the formula.
Disclaimer
This calculator is an educational tool that performs arithmetic only. It does not constitute financial advice, loan approval, or a recommendation to purchase any vehicle. Consult a qualified financial adviser and review loan documentation before entering any financing agreement.
Questions
- What does 'maximum affordable car price' mean?
- It is the largest principal amount that can be financed such that the monthly payment equals the specified percentage of your income, given the loan term and APR. It assumes the entire purchase price is financed with no down payment.
- Why does a higher APR reduce the affordable price?
- A higher APR increases the portion of each payment that goes toward interest, leaving less to pay down the principal. For the same monthly payment, less principal can be borrowed.
- Does this include taxes, fees, or insurance?
- No. The calculator computes only the financed principal and interest. Taxes, registration, dealer fees, and insurance vary by location and are not included in the formula.
- Can I use this for a lease instead of a purchase loan?
- No. Lease payments follow a different calculation that includes residual value and depreciation. This tool applies standard amortisation for instalment loans only.
- What budget percentage is typical?
- The calculator accepts any percentage from 1 to 50. Common financial references cite ranges from 10 to 20 percent of net income, but individual circumstances vary widely and the tool does not recommend a specific figure.
Sources & Methodology
The calculator uses the present-value formula for an ordinary annuity, solving for principal: P = M × [(1 + r)^n − 1] / [r × (1 + r)^n], where M is the monthly payment, r is the monthly interest rate, and n is the term in months. This is the standard reverse-amortisation equation found in introductory finance texts and consumer-loan references.