What is the 20/4/10 rule?
- 20: put at least 20% down, so you don't owe more than the car is worth as soon as you drive off.
- 4: finance for no more than 4 years (48 months).
- 10: keep the monthly payment plus insurance and fuel under 10% of your gross monthly income.
How the calculator works
The out-the-door price you can afford is the max loan plus your down payment, but no more than 5 times your down payment, so the down payment stays at least 20%. Dividing by 1 plus the sales tax rate gives the sticker price.
Example
You earn $75,000 a year, expect $250 a month for insurance and fuel, have $8,000 for a down payment, and can borrow at 7% for 48 months with 6% sales tax.
- Car budget: $75,000 ÷ 12 × 10% = $625 a month
- Left for the payment: $625 − $250 = $375
- A $375 payment for 48 months at 7% supports a loan of $15,660
- Out-the-door price: $15,660 + $8,000 = $23,660, and your $8,000 is more than 20% of that
- Car price before tax: $23,660 ÷ 1.06 = $22,321
With only $3,000 down, the 20% rule becomes the limit: $3,000 ÷ 20% = $15,000 out the door, or about $14,151 before tax. Saving $915 more would raise the limit to about $18,467.
Car budget by income
| Annual income | Max payment | Max loan | Down payment (20%) | Car price |
|---|---|---|---|---|
| $50,000 | $167 | $6,960 | $1,740 | $8,208 |
| $75,000 | $375 | $15,660 | $3,915 | $18,467 |
| $100,000 | $583 | $24,360 | $6,090 | $28,727 |
| $150,000 | $1,000 | $41,760 | $10,440 | $49,246 |
The rule is strict on purpose. If it puts a reliable car out of reach, a cheaper used car, a bigger down payment or a lower rate does more for your budget than a longer loan.
Frequently asked questions
Is the 20/4/10 rule based on gross or take-home pay?
Is 20/4/10 realistic with today's car prices?
Should I count my trade-in as part of the down payment?
What costs besides the payment should I include?
Last reviewed: 2026-10-31