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Loan Affordability Calculator
Find out how much loan you can afford based on your income, debts, interest rate, loan term, and down payment. Perfect tool to plan your borrowing capability and budget responsibly.
Affordability Calculator
Enter your financial details below to estimate the maximum loan amount you can afford.
Understanding Loan Affordability: A Complete Guide
Understanding loan affordability is essential for making informed borrowing decisions that align with your financial goals. Whether you are financing a major purchase, consolidating existing debt, or planning for future expenses, knowing how loan terms, interest rates, and repayment schedules interact can save you thousands of dollars over the life of your loan.
This Loan Affordability Calculator Calculator helps you analyze different borrowing scenarios by computing monthly payments, total interest costs, and amortization schedules. By adjusting key variables such as the loan amount, interest rate, and repayment term, you can see exactly how each factor affects your overall cost of borrowing.
Interest rates on consumer loans vary widely based on your credit score, the type of loan, the lender, and current market conditions. The Federal Reserve's monetary policy decisions directly influence benchmark rates, which in turn affect the rates offered to consumers. As of recent years, personal loan rates typically range from 6% to 36%, while secured loans like auto loans and mortgages generally offer lower rates due to the collateral involved.
Before committing to any loan, it is important to compare offers from multiple lenders, understand the total cost of borrowing (not just the monthly payment), and ensure the repayment schedule fits comfortably within your monthly budget. This calculator makes that comparison process straightforward and transparent.
How to Use This Loan Affordability Calculator
- Enter your Gross Monthly Income ($) — This value represents your gross monthly income
- Enter your Monthly Debt Payments ($) — This value represents your monthly debt payments
- Enter your Interest Rate (%) — This value represents your interest rate
- Enter your Loan Term (years) — This value represents your loan term (years
- Enter your Available Down Payment ($) — This value represents your available down payment
- Click Calculate — Review your results in the output section below the form. The calculator instantly computes all values based on your inputs.
- Adjust and Compare — Modify any input to see how changes affect the result. Try different scenarios to find the optimal approach for your situation.
All calculations are performed instantly in your browser. Your data is never sent to any server or stored anywhere — your financial information remains completely private.
Formula and Methodology: Loan Affordability Formula
Max Loan = PMT × [(1 - (1+r)^(-n)) / r]
Affordable Payment = Gross Monthly Income × DTI Limit - Existing Debt Payments
Where:
- PMT — Maximum affordable monthly payment
- r — Monthly interest rate (annual rate ÷ 12)
- n — Loan term in months
- DTI Limit — Maximum debt-to-income ratio (typically 36-43%)
Worked Example
Income: $6,000/month. Existing debts: $500/month. Max DTI: 36%. Available for new loan: $6,000 × 0.36 - $500 = $1,660/month. At 7% for 60 months: Max loan = $1,660 × [(1 - 1.00583^(-60)) / 0.00583] = $83,400.
Limitations and Assumptions
Most lenders use the 28/36 rule: housing costs should not exceed 28% of gross income, and total debt payments should not exceed 36%. Some lenders allow up to 43% or even 50% DTI for qualified borrowers. Just because you qualify for a loan amount does not mean you should borrow that much — consider your overall financial goals and comfort level.
Real-World Example: Putting the Loan Affordability to Work
Let's walk through a practical example using this calculator.
Scenario: Sarah is considering a $25,000 personal loan to consolidate credit card debt. She has received offers from two lenders:
- Lender A: 8.5% APR, 36-month term — Monthly payment: $789, Total interest: $3,404
- Lender B: 7.2% APR, 48-month term — Monthly payment: $601, Total interest: $3,848
While Lender B offers a lower monthly payment ($188 less per month), Sarah would pay $444 more in total interest over the life of the loan. If her budget can handle the higher payment, Lender A saves money overall. However, if cash flow is tight, Lender B provides more breathing room.
Sarah decides to go with Lender A's rate but asks about a 48-month option: 8.5% APR for 48 months gives her a $615 monthly payment with $4,520 in total interest. She settles on the 36-month term and plans to apply the $188 monthly savings compared to Lender B toward her emergency fund.
