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?

Answer provided by
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. “

Did this answer help you?

Ask us a question by email and we will respond within a few days.

Have a different question?

You can meet us at our office and discuss the details of your question.

Easiest way to compare and buy car insurance

No long forms
No spam or unwanted phone calls
Quotes from top insurance companies