Loan Affordability Calculator: Calculation and Examples
Estimate the loan amount supported by a monthly payment budget, interest rate, and repayment term.
Understanding the calculation
The maximum estimated principal is the present value of the entered payment stream. The down payment increases the purchase budget but does not increase borrowing capacity. This estimate excludes taxes, fees, insurance, and lender qualification rules.
Loan Affordability formula
Maximum principal = monthly budget × [1 − (1 + r)⁻ⁿ] ÷ r. At 0%, maximum principal = monthly budget × number of months.
Worked example
At 0%, a $500 monthly payment budget over 60 months supports $30,000 of borrowing. A $5,000 down payment increases the purchase budget to $35,000.
Assumptions and interpretation
Repayment estimates use fixed interest and equal monthly periods. No fees, rate changes, new borrowing, missed payments, or penalties are added. Interest accrues on the remaining balance, and the last modeled payment is capped at the amount owed.
Displayed amounts are rounded; intermediate calculations use unrounded values. Compare the result with the terms and payment schedule in your agreement. For background on the calculation, read the CFPB explanation of principal and interest payments.
Frequently asked questions
What happens when the interest rate is zero?
No interest is added. Payments reduce principal directly, so a fixed term divides principal equally and a fixed payment determines how many months repayment takes.
Why might the actual result differ?
Payment timing, daily interest accrual, contract rounding, fees, and changing rates can differ from the monthly estimate. Check the lender or issuer’s agreement for the method used.
What inputs should I enter?
Use amounts and rates from the relevant agreement, with time periods matching the labels. Enter zero for an optional amount that does not apply.