About the Car Affordability Calculator
Affordability is almost always decided on the monthly payment, and the monthly payment is the one number a dealer can set to whatever you say you can manage.
Stretch the term and any car becomes affordable. That is why loan terms have been getting longer, and why so many people owe more on a car than it is worth.
So this car affordability calculator answers the two questions the payment cannot: what the car really costs to own, and how long you will owe more than it is worth.
How to Use the Car Affordability Calculator
Enter the price, your deposit, the interest rate and the term.
Add your gross income to test against the 20/4/10 guideline, and your running costs — insurance, fuel, maintenance and tax.
Running costs are not optional detail. On a typical car they are comparable to a meaningful slice of the finance payment, and insurance in particular can differ by hundreds a month between two cars at the same price.
Step-by-Step Example
£40,000 car, £5,000 deposit, 8% over 60 months.
Borrowed: 35,000
Monthly finance: 709.67
Running costs: 350.00
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Monthly outlay: 1,059.67
Depreciation over 5 years: 23,295.80
Interest: 7,580.43
Running costs × 60: 21,000.00
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True cost per month: 864.60The payment is £709.67. The car costs £864.60 a month to own. The gap is depreciation, and depreciation is the largest single cost here.
The Payment Is Not the Cost
Depreciation is the only major cost of motoring that never sends an invoice. Nothing arrives in the post, nothing leaves your account, and so it is routinely left out of the sums entirely.
It is still real money. A £40,000 car held five years loses over £23,000 of value — more than the interest and comparable to all the fuel, insurance and servicing put together.
This is why two cars at the same monthly payment can differ enormously in cost. A car that holds its value and one that does not will feel identical on the statement and be thousands apart by the time you sell.
How Long You Will Be Underwater
A car loses roughly a fifth of its value in the first year. A loan amortises slowly at the start, because most of each early payment is interest rather than principal.
Two curves, moving at different speeds. Where the loan balance sits above the car's value, you are in negative equity — you cannot sell without finding cash, and a write-off leaves you paying for a car you no longer have.
| Deposit | Term | Underwater until |
|---|---|---|
| £0 | 84 months | month 50 |
| £0 | 60 months | month 19 |
| £5,000 | 60 months | never |
| £8,000 | 48 months | never |
On a zero deposit over seven years you spend more than half the loan underwater, peaking at about £3,700 in the hole around month 18.
A £5,000 deposit on the same car over five years avoids it completely.
The Term Matters More Than the Rate
This one is genuinely counter-intuitive, and the calculator confirms it by walking both curves rather than reasoning about it.
20% APR over 24 months → never underwater
8% APR over 120 months → underwater until month 98A punitive rate over a short term keeps you above water throughout, because the principal repays quickly. A good rate over a long term does not.
The rate decides what you pay. The term and the deposit decide whether you owe more than the car is worth.
The 20/4/10 Guideline
Three tests, not one:
20% down. Enough deposit to stay ahead of first-year depreciation.
4 years maximum. Long enough to be manageable, short enough to keep the balance under the value.
10% of gross income for total car costs — finance, insurance, fuel and maintenance together, not just the payment.
The reason it uses three tests rather than a payment limit is precisely that a payment can be made to fit any budget by extending the term. Stretching the term brings the monthly figure down, raises the total cost and deepens the negative equity. It makes the payment affordable rather than the car.
Understanding Your Result
Monthly outlay splits finance from running costs.
What it really costs adds depreciation and interest to give the true monthly cost of ownership.
Negative equity gives the month the loan balance finally falls below the car's value, and the worst of the gap along the way.
Against the 20/4/10 rule tests all three conditions.
Worth knowing flags whichever of those is the problem.
When Should You Use This Calculator?
Before agreeing a monthly payment. It is the number designed to be negotiated to fit, and it hides everything else.
When choosing a term. Compare 48 and 84 months on the same car.
Deciding how much deposit to put down. The effect on negative equity is larger than the effect on the payment.
Comparing two cars. Depreciation and insurance can differ more than the sticker price does.
Common Mistakes
Judging affordability by the payment. Any car is affordable at a long enough term.
Ignoring depreciation. It is usually the largest cost and never sends an invoice.
Forgetting running costs. Insurance on a newer or faster car can be several times higher.
Taking a long term to afford more car. It raises the total cost and keeps you underwater for years.
Assuming a low rate keeps you safe. The term matters more.
Rolling negative equity into the next car. It starts the new loan already underwater and compounds the problem.
Depreciation varies widely by make, model, mileage and condition, and the figures here use typical rates rather than a valuation of any particular car. Every figure is an estimate for planning, not financial advice.