What is the 20/4/10 rule in regard to used car loans?

"I'm not sure how much to spend on a car loan. However, I keep hearing about the 20/4/10 rule.

What does this mean?"

Answer
“The 20/4/10 rule for car loans is a method to keep your finances in order without spending outside of your means.
This stipulates that you should:
  • Have a 20% down payment
  • Get a loan no longer than four years (48 months)
  • Spend no more than 10% of your pre-tax monthly income on your car note
If you can adhere to these rules, you should avoid negative equity, as well as a situation where you can’t pay for your vehicle.”
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Eric Schad
Answered on Jun 10, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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