1. What is the Car Affordability Formula?

The car affordability formula calculates the maximum car price you can afford based on your income, expenses, and payment factor. It follows the 35% rule where your total vehicle expenses shouldn't exceed 35% of your disposable income.

2. How Does the Calculator Work?

The calculator uses the affordability formula:

Where:

• \( Income \) — Your annual or monthly income (CAD)
• \( Expenses \) — Your existing financial obligations (CAD)
• \( PMT\ Factor \) — Payment factor based on interest rate and loan term
• 0.35 — Recommended maximum percentage of disposable income for car expenses

Explanation: The formula calculates what car price would keep your total vehicle expenses (loan payment, insurance, maintenance) at or below 35% of your disposable income.

3. Importance of Affordability Calculation

Details: Proper affordability calculation helps prevent overextending your finances and ensures you choose a vehicle that fits comfortably within your budget.

4. Using the Calculator

Tips: Enter your income and expenses in CAD, and the PMT factor (which you can get from loan amortization tables or online calculators). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the 35% rule?
A: It's a guideline suggesting that no more than 35% of your disposable income should go toward all vehicle-related expenses (loan payment, insurance, fuel, maintenance).

Q2: How do I find my PMT factor?
A: The PMT factor depends on your loan interest rate and term. Many online auto loan calculators can provide this value based on your specific loan terms.

Q3: Should I include taxes in the car price?
A: The calculated affordable price should be considered before taxes and fees, as these additional costs will be part of your total vehicle expenses.

Q4: Is this calculation different for leasing?
A: Yes, leasing calculations are different as they involve residual values and money factors rather than traditional loan terms.

Q5: How often should I recalculate affordability?
A: Recalculate whenever your financial situation changes significantly (income change, new expenses, etc.) or when interest rates fluctuate.