The Salary-to-Car Ratio
It's tempting to shop by "monthly payment," but that's how dealerships trap you in 84-month loans. The 20/4/10 Rule keeps you safe.
Why 20% Down?
New cars lose ~20% of their value in the first year. If you put $0 down, you are immediately "underwater" (you owe more than the car is worth). The 20% down payment covers this initial depreciation cliff.
Why 4 Years?
Car loans longer than 48 months often have higher interest rates. More importantly, after 4 years, repair costs usually start to rise. You don't want to be paying for repairs and a loan payment at the same time.
Dealer: "Good news! We got your payment down to $400/mo."
You: "Great!"
Reality: They extended your loan from 60 months to 84 months. You are
now paying $3,000 more in interest, and you'll be making payments on a 7-year-old
car.
Always negotiate the "Out the Door" price, not the monthly payment.
Affordability FAQ
Technically, the "10%" rule should include insurance and gas. However, this calculator focuses purely on the loan payment to keep things simple. Ideally, keep your loan payment around 8% of income to leave room for insurance.
We recommend using Net (Take-Home) Income. Using gross income is risky because you can't spend money that goes to taxes. Budget with the money that actually hits your bank account.