Car Affordability (20/4/10 Rule)
How much car you can responsibly buy.
How that breaks down
The 20/4/10 rule says: put at least 20% down, finance for no more than 4 years, and keep total transportation costs (loan, insurance, fuel, maintenance) under 10% of gross income. The monthly cap here uses payment alone, leaving the other 10% room for the rest. Popularized by personal finance writers as a guardrail against being house-poor on wheels.
About
The 20/4/10 rule is the personal finance guardrail for car buying: at least 20% down, finance for 4 years or less, and total transportation costs under 10% of gross income. Plug in your income and an interest rate to get the most you should pay for the car.
How to use
- Enter your annual income.
- Enter the loan rate.
- Read the maximum car price.
FAQ
Why 4 years?+
Cars depreciate fast. A 6 or 7-year loan often leaves you underwater (owing more than the car is worth) for most of its life. 4 years is the longest most personal finance writers will recommend.
Where did this rule come from?+
It's been kicking around personal finance writing for 20+ years. Often credited to Edmunds and various radio finance hosts, but no single original source.