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20/4/10 car rule
20% minimum down · 4-year max term · 10% of gross monthly income max payment. Common-sense affordability check before signing.
What this is
The 20/4/10 car rule
A common-sense test for whether a car purchase fits your finances. Three numbers to memorise.
- ·20% — put at least 20% down. Anything less and you start the loan underwater (worth less than you owe).
- ·4 — finance for at most 4 years. Longer terms hide affordability problems and stack interest.
- ·10% — monthly payment ≤ 10% of your gross monthly income.
Down %
20.0%
Term
5 yr
Payment / income
8.5%
Monthly payment
$554
⚠ Stretch — one rule broken
Affordable price at this income + rate: $34,144 ($27,144 financed over 4 years at 7.00%).
Educational guideline. Not financial advice. Used cars almost always beat new on this test — depreciation in year 1 is brutal.