You’re financing the car for four years (48 months) or less.
The cost of owning the car (including insurance and your loan payment) is less than 10% of your gross monthly income.
In other words, the “20” is your 20% down payment, the “4” is for the length of the loan, and the “10” relates to percentage of income.
While this isn’t a steadfast rule, it can be a useful guideline for new car buyers. Adhering to the 20/4/10 rule can help protect you from entering into a financial situation that could damage your credit or finances.
Keep in mind: In more recent years, the 20/4/10 rule has debatably held less sway among car buyers, as it doesn't take into account the fact that wages haven't adjusted in tandem with inflation in the new car market.
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