How Much Car Can I Afford?
The showroom will tell you what EMI you qualify for. This tells you what car your finances can actually carry.
Verdict
Car budget: $20.4K on-road
- Down payment
- $12.0K
- Loan
- $8.4K
- EMI
- $200/mo
- Transport share of income
- 10.0%
The binding constraint is your EMI headroom. Staying at or under this keeps the 20/4/10 rule intact.
How the budget is derived
| Step | Amount |
|---|---|
| EMI budget (10% of income minus running costs) | $200 |
| EMI budget (free cash after expenses and EMIs) | $1,800 |
| Usable EMI budget | $200 |
| Loan this EMI supports | $8,352 |
| Budget cap: down payment + loan | $20,352 |
| Budget cap: 20% minimum down payment | $60,000 |
| Budget cap: half of annual income | $24,000 |
| Recommended on-road budget | $20,352 |
Working backwards from your salary
Car showrooms answer one question: what EMI can you sign for? This tool answers a different one: what car keeps your finances intact? It works backwards from your income and commitments, using the 20/4/10 rule, and caps the result at half your annual income because cars only lose value.
Three separate ceilings are computed: the EMI your budget supports at 10% of income, the price your down payment covers at the 20% minimum, and the half-of-annual-income cap. Your budget is the lowest of the three, and the table shows exactly which one binds. Car loans currently run around 9% for new cars, which is the default here.
FAQ
What is the 20/4/10 rule for buying a car?
Put down at least 20% of the car's price, borrow for no more than 4 years, and keep total monthly transport costs, including EMI, fuel, insurance and maintenance, within 10% of your income. It is the most widely used sanity check for car purchases.
Why should the car cost less than half my annual income?
A car is a depreciating asset: it loses roughly 15 to 20% of its value the moment it leaves the showroom and about half within five years. Capping the on-road price at 50% of annual income keeps that guaranteed loss small relative to your earning power.
Should I use take-home or gross salary?
This calculator uses take-home, which makes it stricter than versions that use gross. Since the EMI is paid out of what actually lands in your account, take-home is the honest base.
Is a 7-year car loan a bad idea?
Longer tenures make expensive cars feel affordable, which is exactly the trap. Beyond 4 years you are often paying interest on a car worth less than the loan. If the EMI only fits at 6 or 7 years, the rule says the car is too expensive.
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