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The 20/4/10 rule, with real numbers
Updated October 28, 2026 · Numbers from our calculators at October 2026 rates
The 20/4/10 rule is a conservative guideline for buying a car:
20% down. Put at least a fifth of the price down, so the loan starts smaller than the car's value.
4 years. Borrow for no more than 48 months, which keeps interest down and gets you to owning the car outright sooner.
10% of income. Keep total car costs under 10% of gross income. Versions differ on what "total" means: some count only the payment and insurance. Here we count everything a car costs each month: the payment, insurance, fuel, maintenance, repairs and registration.
Worked example
20/4/10 on a $60K salary
$60,000 a year is $5,000 a month, so 10% is $500 a month for everything car-related.
A typical new car's insurance, fuel and upkeep take $307 of that, leaving $181 for the loan payment. With 20% down and 48 months at about 7%, that buys a car of about $8,000: less than nearly any new car on sale.
That is the surprise in the rule. Once you count everything a car costs, 10% of income doesn't stretch far, and the running costs, not the price, are what eat the budget.
By income
What 20/4/10 allows, counting every cost
Typical car of any body type, good credit, 12,000 miles a year, with rent or mortgage at about 25% of income. The last column is our Comfortable level: all car costs at 15% of income, 10% down, 60 months. A dash means the budget only covers a car under $5,000.
Why each part
What each number protects you from
20% down covers the value a new car loses in its first year or so, so you don't owe more than it is worth if you need to sell. Four years limits interest and the stretch of time a loan outlasts the car's value. 10% of income leaves room for saving, housing and everything else.
Most buyers don't follow it: the average new-car loan runs well past 60 months. If 20/4/10 is out of reach, the usual trade-offs are a used car, which loses less value, or a 15% budget with a five-year loan, which is still workable if the payment leaves room for the running costs.
Questions
Common questions
Is 20/4/10 based on gross or take-home pay?
Gross pay, before taxes, in most versions. Using take-home pay makes it even stricter.
Does the 10% include insurance and gas?
Versions differ. The strict reading counts all transportation costs; a looser one counts only the payment and insurance. We count everything, since you pay all of it.
What if I can't follow 20/4/10?
Keep the spirit: put down what you can, avoid loans longer than 60 months, and keep the full monthly cost, not just the payment, to a share of income you can live with. A 3- to 5-year-old car often fits when a new one doesn't.
Try it
Run it on your numbers
The car affordability calculator's 10% level is the 10% part of 20/4/10. Set 20% down and a 48-month loan to apply all three, and see which real cars fit.