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

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 Schad
Answered on Apr 08, 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.
“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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