Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
Updated on Thursday, June 11, 2020
If you’re asking “How much car can I afford?” use our auto affordability calculator. Television and radio ads talk about getting you into a beautiful new car right now, but it’s smart to see how much you can afford first. Budget methods such as the 20/4/10 rule can give you more guidance.
- Auto affordability calculator
- How to use our auto affordability calculator
- Look at more than just the monthly payment
Auto affordability calculator
Input your desired monthly payment, down payment and other relevant details below to find out how much car you can afford.
Other MagnifyMoney auto loan calculators
After you use our affordability calculator, have our auto payment calculator available on your smartphone when you talk to dealerships. The calculator allows you to estimate your car payment based on a vehicle’s price. This way, you could double-check any quotes a dealer gives you to see whether they’re being accurate or trying to slip in extra products.
If you’re unsure whether you want to get a new car or if refinancing your current vehicle would be more in line with your budget, check out our auto refinance calculator. It allows you to see the estimated savings you would have over the life of your car loan if you refinanced. If your credit score has improved since you first took out your auto loan or loan interest rates have decreased, it may pay off to consider refinancing.
How to use our auto affordability calculator
You need to know a few things to get started, such as your down payment and how long you want the loan term to be. Play around with inputs and adjust various terms to see different results.
Find your desired monthly payment
To figure out what you can afford, first look at what you’re already buying. You should first determine your month-to-month expenses. It’s easy to know how much you make each month, but it’s important to know how much you spend in the same period.
See how much you spend by adding your fixed expenses or using a budget app. Based on how much you have remaining (and how much you want to continue saving), you’ll know how much you have available to spend on a car payment. If you don’t have much left over, you’ll need to make changes to your spending (or find ways to earn more money) before trying to fit in a car payment.
Keep in mind that a car will cost more than its payment — auto insurance, gas and maintenance should be in your budget, too. These costs highly depend on which type of car you have and how you use it.
- If you have an older car and a long work commute, you may have to budget a lot for gas, but it may be cheap to insure.
- If you have a newer car with great gas mileage, you may pay less in gas and maintenance but more in taxes and insurance.
Determine your down payment
The conservative rule of thumb, based on the 20/4/10 rule, is to put down 20% on an auto loan. If you can do more, that’s great!
If you can’t put down 20% and need some help saving for a down payment, here are the best money-saving apps. Try to cover the taxes and fees on the car and any negative equity from a trade-in so that you don’t finance more than what the vehicle is worth.
Most states charge a sales tax, and your municipality might, too. You should expect to pay 8% to 10% of the vehicle’s sales price in taxes and fees.
Of course, not all things that a dealer presents as fees are necessary. For example, GAP insurance and an extended warranty are optional products. But some fees are nonnegotiable, including:
- New-car delivery fees
Dealers will often say their document fee is nonnegotiable. Depending on the state and the dealership, document fees can range from $200 to near $1,000. If the total takes your breath away, ask them to reduce the car’s price to make up for it. You can read about dealer fees to know when buying a car. And here’s how much to put down on a used car.
Obtain your trade-in value and amount owed on trade
Look up how much your car is worth as a trade-in on a free industry guide site such as Kelley Blue Book. You’ll see a range of trade-in values, depending on the condition of your car — from fair to great.
If you don’t owe anything on your trade, input zero into the affordability calculator. If you still have a lien on your vehicle, contact your lender and ask for the current payoff, which is how much it would cost to pay off your auto loan. Here are further tips and tricks on what to know before you trade in your car.
Look up your credit score
Your credit score is a vital factor in the auto loan interest rates you could get. Typically, the better your credit score, the lower the APR. It’s easy to view your credit score for free. Some businesses also offer free credit score monitoring, so check with your credit card provider or bank.
If your score isn’t where you’d like it to be, here are six ways to improve your credit score. This usually takes some time, however. If you need a new car now, you could consider bad-credit car loans, though you’re likely to get a shorter repayment term and higher APR.
Estimate your interest rate
Now that you know your credit score, here are average APRs broken up by credit score that you could plug into the car loan calculator.
Choose your loan term
Based on the 20/4/10 budgeting rule, you shouldn’t finance a car for more than four years. The longer a car loan is, the more you’ll pay in total interest.
However, many people find a shorter term loan to be a challenge. The average car loan term in the U.S. is just less than six years. If you can, keep your car loan term short. If you can’t, get a longer loan and aim to pay it off faster.
As you pay it off, don’t deplete your savings. If you can, set aside money for unexpected car expenses, such as repairs or traffic tickets (though you should do your best to avoid those). Keep in mind repairs aren’t limited to old cars. For example, the car’s age doesn’t matter much if you run over a nail and need a new tire. Even if a repair is covered by insurance, you may still have to pay a deductible.
Look at more than just the monthly payment
When you pick out and buy a vehicle, the best way to stick to your budget is not to focus on the monthly payment. Instead, focus on:
The total price of the car
It can be easy to justify increases in monthly payments. You may think of a $40 payment increase being equivalent to a nice meal once a month. But $40 a month for four years, even without interest, is almost $2,000. (To avoid costly errors like this, you could read up on the common car loan mistakes many people make.)
The total price of financing
Many people only have eyes for the APR, but a longer loan with a lower APR can mean that you will pay more in interest. Compare the total interest charges of different loan offers as part of judging how much car you can afford.
The total ownership costs
Car ownership also involves paying for gas, insurance, maintenance and, eventually, repairs. The last part of the 20/4/10 rule states that your total transportation cost should be less than 10% of your monthly income.
Take the time to shop around for cars, car loans and even car warranties and insurance, and don’t be afraid to negotiate. You could fill out an online form at LendingTree and receive up to five potential auto loan offers from different lenders, depending on your creditworthiness.