Car Affordability Calculator (20/4/10 Rule)
Example: Gross annual income: 70000 $ · Cash for down payment: 6000 $ · Expected loan APR: 7 % · Other monthly auto costs (insurance, etc.): 150 $
| Max car price | $24,096 |
| Max monthly payment | $433 |
| Max loan amount | $18,096 |
Worked example
On a $70,000 salary, 10% of income is $7,000 a year, or about $583 a month for all auto costs. Subtract $150 for insurance and you have about $433 for the loan payment. At 7% over 48 months that supports a loan of roughly $18,850, and adding a $6,000 down payment puts your responsible ceiling around $24,850. That is the price to shop under, not the maximum a dealer will approve you for.
Frequently asked questions
Why 20/4/10 instead of just what the dealer approves?
Lenders approve based on their risk, not your financial health. The 20/4/10 rule keeps you from being house-poor on wheels by capping the payment, forcing enough equity up front, and keeping the term short so you are not underwater for years. It is a budgeting rule, not a lending limit.
Should the 10% include insurance and gas?
The strict version of the rule counts the loan payment against 10% of income; a stricter reading counts total transportation. This tool lets you subtract other auto costs so the loan payment plus insurance stays within the cap. Adjust the other-costs field to be as conservative as you like.
What if I pay cash for the whole car?
Then affordability is about your emergency fund and goals, not a monthly payment. A reasonable guideline is to keep a car purchase from draining your savings below a few months of expenses. This tool is aimed at financed buyers.
Why only a four-year loan?
Cars depreciate fast, and long loans keep you owing more than the car is worth for years. A four-year term forces a payment you can actually handle and gets you to positive equity sooner, which is why the rule caps the term rather than the payment alone.