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How Much Car Can You Afford? The 20/4/10 Rule
The most common car-buying mistake is shopping by monthly payment instead of total cost. A simple guideline — the 20/4/10 rule — keeps you in a car you can actually afford. Here's how it works.
→ See the real monthly payment for any car priceThe 20/4/10 rule
| Part | Guideline |
|---|---|
| 20% down | Put at least 20% down to start with equity and borrow less |
| 4-year loan | Finance for no more than 48 months |
| 10% of income | Keep total car costs (payment + insurance + fuel) under 10% of gross income |
If a car forces you to break these — tiny down payment, 72-month loan, payment eating 15% of income — it's probably more car than you can comfortably afford.
→ Try different prices and terms in the calculatorWhy the loan term matters most
Long loans (72–84 months) make expensive cars look affordable by spreading the payment out — but you pay much more interest and stay upside-down for years. A shorter term costs more per month but far less overall.
Don't forget the costs beyond the payment
- Insurance — varies widely by car and driver.
- Fuel and maintenance — older or larger vehicles cost more to run.
- Registration and taxes — easy to overlook in the excitement.
New vs. used
A new car loses a big share of its value in the first couple of years — depreciation you pay for. A lightly used car (two to three years old) lets someone else absorb that drop, so your money buys more car and you're less likely to end up underwater. If you do buy new, keeping it for many years spreads that depreciation out. Either way, the affordability math is the same: total cost and a short term matter far more than the sticker shine.
The bottom line
Use 20/4/10 as a sanity check: 20% down, a 4-year max term, and total car costs under 10% of income. Focus on total cost, keep the term short, and budget for insurance and upkeep.
→ Find an affordable payment — free calculatorRelated: Good car loan rate? · Short vs long term