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 provided by
Eric Schad
Answered on Jun 10, 2021
“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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