How Much Car Can I Afford? The 10/20/4 Rule Explained
Use the 10/20/4 car buying rule to avoid overspending. Includes payment calculators and total cost of ownership.
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Key Takeaways
- 110% rule: car payment should not exceed 10% of gross monthly income.
- 220% rule: total vehicle expenses (payment + insurance + gas) under 20%.
- 34-year rule: finance for 48 months max — longer terms cost far more.
- 4A $40,000 car loses 20% value the moment you drive off the lot.
Americans are spending record amounts on cars — $700+/month payments are common. The 10/20/4 rule keeps car costs from destroying your budget and retirement savings.
Calculate your payment with our auto loan calculator.
The 10/20/4 Rule
10%: max monthly payment as % of gross income. At $6,000/month income, cap payment at $600. 20%: total car costs (payment, insurance, gas, maintenance) under $1,200. 4: finance for 48 months or less.
A 72-month loan on a depreciating asset is how you end up underwater.
Total Cost of Ownership
Purchase price is half the story. Insurance: $100–$300/month. Gas: $150+. Maintenance: $50–$100/month. Registration and taxes add more.
A "affordable" $500 payment can become $900/month all-in.
Buy Used vs New
A 2–3 year old certified pre-owned car avoids the steepest depreciation. Read our auto loan guide before visiting dealers.
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