What is the 20/4/10 rule of buying and financing a car?

Answered by Car Loans Expert Eric on April 8, 2021

I've heard my grandpa mention this rule before while advising my uncle on buying a car. What does it actually mean?

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Eric

Car Loans Expert

“The 20/4/10 rule is a car-buying principle that states you should only by a car if:

  • You can afford a 20% down payment
  • 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

While this isn’t a steadfast rule in all cases, adhering to it will ensure that you don’t enter into a financial situation that’s destined to put you in dire straits. “


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