How much car can you afford?
The question has two halves. First, how big a monthly payment fits your budget. Second, how much car that payment buys once interest, sales tax and fees are taken into account. This calculator works backwards from the payment to the highest vehicle price, assuming the sales tax and fees are financed with the loan, as they usually are at a dealership.
Loan you can carry = payment × (1 − (1 + r)^−n) ÷ r
Car price = (loan − fees + down payment + trade-in × (1 + tax rate)) ÷ (1 + tax rate)
r = APR ÷ 12, n = number of months; sales tax is charged on the price minus the trade-in
Rules of thumb for a car budget
There is no official limit, but lenders and personal-finance writers commonly use these guidelines:
- 10% of gross income for the payment. Keeping the loan payment near one tenth of your pre-tax income leaves room for insurance, fuel, maintenance and everything else.
- The 20/4/10 rule. Put at least 20% down, borrow for no more than 4 years, and keep total car costs (payment, insurance and fuel) under 10% of gross income. It is strict, and many buyers stretch it, but it keeps you from owing more than the car is worth.
- Your total debt load. Lenders look at your debt-to-income ratio: all monthly debt payments, including rent or a mortgage, divided by gross monthly income. A new car payment pushes that ratio up for every loan you apply for later.
Worked example
You earn $72,000 a year and want to spend 10% of your gross income on the car payment: 72,000 ÷ 12 × 0.10 = $600 a month. You have $5,000 for a down payment, no trade-in, and a 7% APR offer for 60 months. Sales tax is 6% and fees are $600.
- Loan you can carry: 600 × (1 − 1.0058333^−60) ÷ 0.0058333 = $30,301.20
- Highest car price: (30,301.20 − 600 + 5,000) ÷ 1.06 = $32,736.98
- Check: 32,736.98 + 6% tax (1,964.22) + 600 fees − 5,000 down = 30,301.20 financed.
How the term changes your budget
With the same $600 payment, 7% APR, $5,000 down, 6% tax and $600 fees:
| Term | Highest car price |
|---|---|
| 36 months | $22,482.90 |
| 48 months | $27,788.79 |
| 60 months | $32,736.98 |
| 72 months | $37,351.57 |
A longer loan makes a more expensive car "affordable" each month, but you pay far more interest and the car is worth less than you owe for longer. If the price only works at 72 or 84 months, it is usually a sign to look at a cheaper car.
Costs the payment does not include
- Insurance: often the second-largest car cost, and higher for new or financed cars because lenders require full coverage.
- Fuel or charging, maintenance and tires: budget for them monthly, not only when they come up.
- Registration renewals and parking.
Add these to the payment before you decide what is affordable. If the total is well over 15% of your take-home pay, the car may squeeze the rest of your budget.
Common mistakes
- Using take-home pay with a gross-income rule. The 10% guideline refers to income before tax. If you prefer to work from take-home pay, use a smaller percentage or enter your own payment.
- Forgetting tax and fees. They come out of the same loan, so they reduce the price you can pay for the car itself.
- Assuming you will get the advertised APR. Advertised rates usually need excellent credit. Use a rate from a real pre-approval if you have one.
This is a budgeting estimate, not a credit decision. Lenders also look at your credit history, existing debts and the vehicle itself.
Frequently asked questions
How much car can I afford on a $72,000 salary?
With 10% of gross income ($600 a month), $5,000 down, 7% APR over 60 months, 6% sales tax and $600 fees, the highest car price is about $32,737.
What is the 20/4/10 rule for buying a car?
Put at least 20% down, finance for no more than 4 years, and keep total car costs (payment, insurance and fuel) under 10% of your gross income. It is a guideline, not a lender requirement.
What percentage of my income should go to a car payment?
A common guideline is about 10% of gross monthly income for the loan payment, and around 15% or less for all car costs including insurance and fuel.
Does a longer loan mean I can afford more car?
It lowers the payment, so the same budget buys a pricier car, but the total interest rises and you are more likely to owe more than the car is worth.
Sources
- Consumer Financial Protection Bureau (US). Auto loans: shopping for a car loan and understanding the total cost.
- Consumer Financial Protection Bureau (US). What is a debt-to-income ratio?
- Federal Trade Commission (US). Financing or leasing a car, consumer advice.
Last reviewed 20 October 2026. Results are estimates; see our disclaimer.