Car affordability 20/4/10 rule.

Worked example

A $32,000 car (tax and fees included) with $6,400 down, financed at 6.5% for 48 months. The loan is $25,600 and the payment is $607.10. Add $150 insurance and $200 fuel and upkeep: $957.10 a month. Gross income of $96,000 is $8,000 a month, so all car costs are 12.0% of gross. Down payment 20.0% passes, 48 months passes, 12.0% is over 10%. The payment alone is 7.6%. With those insurance and running costs, the most the rule allows is a $450.00 payment, which at 6.5% over 48 months supports a price of about $23,719.

How it works

Down payment % = down / price. Loan payment = standard fixed-rate formula on price minus down. Share of income = (payment + insurance + fuel and upkeep) / (gross annual income / 12). Most the rule allows = a payment budget of 10% of gross monthly income minus insurance and running costs, turned into a loan amount over 48 months at your APR, then divided by 0.8 so the loan is 80% of the price.

The 20/4/10 rule itself is a common rule of thumb, not a published standard, and this page does not cite an origin for it. What the FTC does say is that low monthly payments often come from longer terms and higher rates that raise the overall cost, and that a down payment lowers total financing costs, which is the logic the rule borrows.

Sources and basis (opened 2026-10-08): Federal Trade Commission, Consumer Advice, “Financing or Leasing a Car”. Statements used: monthly payment is not the whole cost; a down payment reduces the amount financed; longer terms cost more overall.

Not financial advice. This is a planning estimate from the numbers you type. Taxes, fees, insurance and lender or lessor terms vary; confirm every figure against your contract or written quote.

FAQ

What is the 20/4/10 rule for buying a car?

It is a rule of thumb: put at least 20% down, finance for no more than 4 years (48 months), and keep total transportation costs at or under 10% of gross income. It is a common guideline, not a published standard, so treat it as a quick screen.

Does the 10% include insurance and gas?

In the version this tool uses, yes: payment, insurance, fuel and upkeep all count toward 10% of gross monthly income. Some versions count only the payment, so the tool also shows the payment-only share.

Is the 10% before or after tax?

This tool uses gross income, before tax, because that is how the rule is usually stated. If you prefer net income, compare the dollar amounts against your take-home pay.

Why is the term limited to 48 months?

Longer loans cost more in total interest and the car can lose value faster than the balance falls. The FTC notes that 72 and 84 month loans can lower payments but the longer the term, the more expensive the deal is overall.

Should I buy the most expensive car the rule allows?

No. The maximum price is a ceiling from a rule of thumb, not a recommendation. Your other debts, savings goals and local costs may mean a lower number is right for you.