1. What is the 15% Rule for Car Affordability?

The 15% rule suggests that your monthly car payment should not exceed 15% of your gross monthly income. This helps ensure your car payment remains affordable within your overall budget.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( Income \) — Your gross monthly income in USD
• \( 0.15 \) — The 15% affordability threshold

Explanation: This calculation provides the maximum recommended monthly car payment based on your income.

3. Importance of Payment Affordability

Details: Maintaining an affordable car payment helps prevent financial stress and ensures you can comfortably cover all your living expenses while saving for other goals.

4. Using the Calculator

Tips: Enter your gross monthly income before taxes. The calculator will show the maximum recommended monthly car payment based on the 15% rule.

5. Frequently Asked Questions (FAQ)

Q1: Does this include insurance and maintenance?
A: No, this is just for the car payment. Experts recommend keeping total auto expenses (payment, insurance, maintenance) below 20% of income.

Q2: Should I use gross or net income?
A: The rule typically uses gross income, but you might want to use net income for a more conservative estimate.

Q3: Is 15% appropriate for everyone?
A: Those with higher debt loads or living expenses may need to use a lower percentage (10-12%).

Q4: How does loan term affect affordability?
A: Longer terms reduce monthly payments but increase total interest paid. Aim for the shortest term you can afford.

Q5: Should I include a down payment?
A: This calculator shows payment based on income. A down payment would reduce the loan amount needed.