How Much Car Can I Afford? The 20/4/10 Rule and Your Budget
Find the most car you can afford from a monthly budget or your income, with taxes, fees and trade-in, and how loan length changes the answer.
Published
Free tool: Car Affordability CalculatorCar shopping usually starts with a price, but the safer question is the reverse: given what you can comfortably pay each month, what price can you afford? This guide shows how to work it out, including taxes, fees and a trade-in, and how the popular 20/4/10 rule fits in, using the free Car Affordability Calculator.
From a monthly budget to a price
The calculator turns your payment into the loan it can support, then adds your down payment and trade-in equity, and subtracts sales tax and fees.
Example: a budget of $500 a month for 60 months at 7%, with $5,000 down, 7% sales tax and $800 of fees:
- Loan amount: $25,251
- Car price you can afford: up to $27,524
- Sales tax: $1,927; total interest: $4,749
- Total cost of the car: $35,000
A trade-in worth $8,000 with $3,000 still owed adds $5,000 of equity and raises the affordable price to about $32,197.
Longer loans buy more car, at a cost
| Loan term | Car price | Total interest |
|---|---|---|
| 36 months | $19,059 | $1,807 |
| 48 months | $23,439 | $3,120 |
| 60 months | $27,524 | $4,749 |
| 72 months | $31,334 | $6,673 |
| 84 months | $34,887 | $8,871 |
Stretching to 84 months buys a pricier car for the same payment, but nearly doubles the interest compared with 60 months, and you're more likely to owe more than the car is worth.
The 20/4/10 rule
A common guideline for buying a car:
- 20% down payment
- Finance for 4 years or less
- Keep total car costs, including the payment, insurance, fuel and upkeep, within 10% of gross monthly income
With a $75,000 income and $250 a month of running costs, 10% of income ($625) leaves a $375 payment. Over 60 months at 7%, that buys a car of about $21,625, and the $5,000 down payment covers 23% of the price, though a 60-month loan breaks the 4-year guideline.
Other costs to plan for
Insurance, fuel or charging, maintenance, registration and depreciation all add to the cost of owning a car. In some states, sales tax is charged on the price minus your trade-in; the calculator taxes the full price, which is slightly conservative. For the loan itself, see How to Calculate a Car Loan Payment.
How to use the Car Affordability Calculator
- Open the Car Affordability Calculator.
- Choose your starting point: a monthly payment, or your income using the 20/4/10 rule (with your monthly insurance, fuel and upkeep).
- Enter your down payment, trade-in value and what you still owe on it.
- Enter the interest rate, loan term, sales tax and fees.
- Read the results: the car price you can afford, the loan amount, the sales tax, the total interest and the total cost, with a 20/4/10 check, a chart of price by loan term, a breakdown of how the purchase is paid for and a table of prices by term.
Frequently asked questions
How much car can I afford on $500 a month?
At 7% over 60 months with $5,000 down, 7% tax and $800 of fees, about $27,500. Over 48 months, about $23,400.
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 within 10% of your gross monthly income.
Is a 72- or 84-month car loan a good idea?
It lowers the payment but adds a lot of interest and raises the risk of owing more than the car is worth. Shorter loans are usually better if the payment fits.