The 20/4/10 Rule

The 20/4/10 rule is a simple way to keep a car affordable. Put down at least 20 percent so you start with equity and avoid being underwater on the loan. Finance for no longer than four years, because stretching to six or seven years lowers the payment but means paying interest on a rapidly depreciating asset and staying in debt long after the car has lost most of its value. And keep all transportation costs, the loan payment plus insurance, fuel, and maintenance, at or below 10 percent of your gross income.

Like other rules of thumb, it is conservative on purpose. Plenty of buyers break it, especially the four-year part, as loan terms have stretched. But the further you drift from 20/4/10, the more a car eats into money that could go toward an emergency fund or retirement. Our buy versus lease playbook and the car affordability tools put real numbers behind the rule.