Car Affordability Calculator (20/4/10 Rule)
Enter your income, the loan rate and your expected running costs.
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Car Affordability Calculator (20/4/10 Rule) by TheCalcTools
How the Car Affordability Calculator (20/4/10 Rule) works
The 20/4/10 rule of thumb: put at least 20% down, finance for no more than 4 years, and keep all car costs (payment, insurance, fuel, maintenance) under 10% of gross income.
The affordable loan is the present value of the payment left after running costs; dividing by (1 − down share) gives the price. It is a guideline, not a law; tighter budgets may need less.
The formula
Worked example
Using the default values shown in the calculator:
| Gross yearly income | $75000 |
|---|---|
| Share of gross income for all car costs | 10 % |
| Insurance, fuel and maintenance per month | $300 |
| Loan interest rate | 7 % |
| Loan term (years) | 4 |
| Down payment share | 20 % |
- On 75,000 a year, 10% is $625 a month; after 300 of running costs, the payment can be $325.
- At 7% over 4 years that supports a $13,572 loan, so a car of about $16,965.
Result:
| Car price you can afford | $16,965 |
|---|---|
| Maximum loan | $13,572 |
| Down payment needed | $3,393 |
| Maximum monthly payment | $325 |
| Total monthly car budget | $625 |
Frequently asked questions
Is 10% of income for a car realistic?
It is conservative. Many people spend more, but the rule leaves room for saving and other goals.
Sources and further reading
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This calculator gives estimates for information only. Check important results independently before you rely on them. See our disclaimer.