Home
Back
Car Affordability Formula:
| From: | To: |
The Car Affordability formula estimates how much car you can afford based on your income, existing debts, loan term, and interest rate. It follows the general principle that your car payment shouldn't exceed 30% of your monthly income after accounting for other debts.
The calculator uses the Car Affordability equation:
Where:
Explanation: The equation calculates the maximum affordable amount by considering 30% of income minus existing debts, adjusted for the loan term and interest rate.
Details: Calculating car affordability helps prevent overextension of finances and ensures you choose a vehicle that fits comfortably within your budget.
Tips: Enter your monthly income in INR, monthly debt payments in INR, desired loan term in months, and interest rate as a decimal (e.g., 0.01 for 1%). All values must be valid (income > 0, term ≥ 1).
Q1: Why use 30% of income as the guideline?
A: This is a common financial recommendation to ensure your total transportation costs (including insurance, fuel, etc.) don't exceed 35-40% of your income.
Q2: What if I have no existing debts?
A: Simply enter 0 in the debts field. The calculation will then be based on 30% of your income.
Q3: How does the interest rate affect affordability?
A: Higher interest rates reduce the amount you can afford, as more of your payment goes toward interest rather than principal.
Q4: Should I include all my debts?
A: Yes, include all monthly debt obligations (credit cards, personal loans, student loans, etc.) for an accurate calculation.
Q5: Is this calculation specific to India?
A: While the formula is universal, this calculator uses INR as currency and considers typical Indian car loan terms and rates.