Car Affordability Calculator
Most car affordability tools work out what payment your budget covers. This takes the running costs out first, because insurance and fuel are not optional and a budget that only covers the finance is not a budget for owning a car.
Car you can afford
$22,675.70
- Left for the loan
- $350.00 a month
- You could borrow
- $17,675.70
- Deposit and trade-in
- $5,000.00
- Running costs
- $300.00 a month
- Total interest
- $3,324.30
- Insurance, fuel and upkeep are taken out first because they are not optional. A budget that only covers the finance payment is not a budget for owning a car.
- Tax, registration and any dealer fees are on top of the price here, and on a new car they are not small.
- A longer term raises what the budget buys and costs more in total. It also keeps you in negative equity for longer, which matters if the car is written off.
About the car affordability calculator
A $650 monthly budget does not buy a $650 payment. Insurance, fuel and maintenance come out of the same money, and on a typical car they take $250 to $350 of it. At $300 of running costs the payment budget is $350, which at 7% over five years supports a loan of $17,676 — a $22,676 car with $5,000 down.
Running costs also scale with the car, which is what makes the mistake compound. A more expensive car costs more to insure, usually more to fuel, and considerably more to repair. Stretching the payment budget to buy a better car raises the very costs you squeezed to afford it.
The term is the other lever, and the tempting one. Going from five years to seven lowers the payment and raises what you can borrow, which is exactly how it is sold. It also keeps you in negative equity longer — owing more than the car is worth — which only matters if you need to sell or it is written off, and those are precisely the moments it matters most.
Tax, registration and any dealer fees sit on top of the price here, and on a new car they are not small.
What it works out
- What is left for finance after running costs
- The loan that supports, and the car price with deposit and trade-in
- Total interest over the term
- Any rate and term
The formula
Price = P(Budget − Running costs, Rate, Term) + Deposit + Trade-in
Take the running costs off the budget, then run the amortization formula backwards on what is left to find the loan that payment supports, then add whatever cash is going in.
$650 less $300 of running costs is $350 for the finance. At 7% over five years that supports $17,676. Add $3,000 of deposit and a $2,000 trade-in and the car is $22,676.
Notice how sensitive that is to the running costs. Take them out and the same budget appears to support a $37,800 car — which is why an affordability calculator that ignores them flatters you by more than half.
The term is the other lever. Stretching to seven years raises what the same payment supports, and every extra month is more interest and more time owing more than the car is worth.
- Budget
- Everything you can spend on the car each month, finance and running costs together.
- Running costs
- Insurance, fuel and upkeep. Not optional, and they rise with the price of the car.
- Deposit
- Cash going in, which buys car rather than servicing debt.
- Trade-in
- What the old car is worth, less anything still owed on it.
A worked example
A $650 monthly budget with $130 insurance, $120 fuel and $50 upkeep, financing at 7% over five years with $3,000 down and a $2,000 trade-in.
That works out to $22,675.70 .
- Left for the loan
- $350.00 a month
- You could borrow
- $17,675.70
- Deposit and trade-in
- $5,000.00
- Running costs
- $300.00 a month
- Total interest
- $3,324.30
Questions
What car can I afford on $650 a month?
About $22,700 with $5,000 of deposit and trade-in, once $300 of running costs come out and the rest finances at 7% over five years. Ignore the running costs and the same budget appears to buy nearly $38,000.
What is the 20/4/10 rule?
Twenty per cent down, no more than four years of finance, and total car costs under ten per cent of gross income. It is a rule of thumb rather than a law, and it is deliberately conservative — most people who follow it do not get into trouble with a car.
Should I take a longer term to afford a better car?
It is what makes a better car look affordable and it costs more in two ways: more interest, and longer owing more than the car is worth. If the only way to reach a car is seven years of finance, that is information about the car.
How much should I budget for running costs?
It varies enormously by car, age and where you live, so use your own quotes. $250 to $350 a month covering insurance, fuel and an averaged repair allowance is a common range, and older cars shift the mix towards repairs.
Does a bigger deposit help much?
It buys car directly rather than through a payment, so every pound of deposit is a pound of car plus the interest you avoid on it. It also reduces the time spent in negative equity, which is the risk finance actually carries.
Is negative equity a real problem?
Only when you need to sell or the car is written off — and then it is entirely real, because you owe the difference with no car. Long terms and small deposits both extend the period you are exposed to it.
Are tax and fees included in this price?
No. Sales tax, registration and dealer fees sit on top and vary by where you are. On a new car they can add several per cent to the figure here.