Car Affordability Calculator (20/4/10 Rule)
The "20/4/10 rule" is a commonly cited budgeting guideline (not a hard financial rule) suggesting: at least 20% down, a loan term of 4 years or less, and total monthly vehicle costs (payment, insurance, fuel, maintenance) under 10% of gross monthly income. Enter your numbers to see how they compare.
What the three numbers mean
The guideline is applied to two inputs, the vehicle price and your gross monthly income:
down payment = price x 0.20
loan term = 48 months (fixed by the rule)
monthly cap = gross monthly income x 0.10On the default $30,000 car and $6,000 a month income that is $6,000 down, four years of payments, and $600 a month for everything the car costs you.
The 10% is not the payment
This is where the rule gets misread. That $600 has to cover insurance, fuel, registration and servicing as well as the finance. Take out $150 of insurance, $150 of fuel and $50 for maintenance and only $250 is left for the loan.
Borrowing $24,000 - the $30,000 price less the 20% down - over 48 months at 7% costs about $575 a month. That is more than double what is left, so the car fails the test on the third number even though the deposit and the term pass.
Frequently asked questions
How much car can I afford on a $60,000 salary?
That is $5,000 gross a month, so $500 for all car costs. Allow $300 for insurance, fuel and upkeep and $200 is left for the payment, which over 48 months at 7% supports a loan near $8,350 - about a $10,400 car once the 20% deposit is added.
Is the 20/4/10 rule realistic today?
Not for the average new car, which most incomes cannot pass. Treat it as the line that tells you a purchase has become a stretch, not a budget you are failing to hit.
Does my trade-in count towards the 20% down?
Yes - trade-in equity counts the same as cash. If you still owe more than the old car is worth, that shortfall is usually rolled into the new loan and works against the 20%.