The 20/4/10 Rule is a guideline commonly used in personal finance to determine an affordable car purchase based on three key factors: down payment, loan term, and monthly payment. This rule helps individuals ensure they don’t exceed their financial capabilities when buying a vehicle. The rule breaks down as follows:
What is the 20/4/10 car loan rule?
The 20/4/10 rule is a guideline used by lenders to determine how much car you can afford based on your income and expenses. The rule states that you should: Put down at least 20% of the car’s purchase price as a down payment. Finance the car for no more than 4 years.
What is the 20/4/10 car affordability rule?
Use This Car Affordability Rule When Shopping for Your New or Used Vehicle The 20/4/10 rule of thumb can help you decide how much to spend on a car. Learn how to use it to set your budget and what the rule’s limitations are.
