Car Affordability Calculator
The 20/4/10 guideline is a common rule of thumb: a 20% down payment, a loan of 4 years or less, and total car costs under 10% of gross monthly income. This shows the price that fits those numbers with your own rate and costs. It is a rule of thumb, not advice.
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How it works
Your monthly room for the loan payment is 10% of gross monthly income, minus insurance and fuel. The loan that payment supports is worked out with the standard loan formula.
That loan is then grossed up for the down payment to give a price. This is one rule of thumb only. Your budget, other debts, savings and the cost of the car over time matter too.
Worked example
With a yearly income of $72,000.00 and $250.00 a month for insurance and fuel, the payment room is $350.00 a month. At 7% over 4 years with 20% down, that fits a car price of about $18,270.09 under this guideline.
Questions
What is the 20/4/10 guideline?
It is a common rule of thumb for buying a car: a 20% down payment, a loan no longer than 4 years, and total car costs under 10% of gross monthly income.
Is this advice about what I should buy?
No. It shows the math behind one guideline. Your own budget, savings and other bills decide what fits your life.
Why does gross income matter?
The guideline uses income before tax, so take-home pay will feel tighter than the figure suggests.
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