How this calculator works
The 20/4/10 rule: 20% down, a loan no longer than 4 years, and total car costs (payment + insurance + fuel) under 10% of gross income. This tool reserves 4% of income for insurance and fuel, and turns the rest into a loan and a price.
- All-in car budget = gross monthly income × 10%.
- Reserved for insurance and fuel = gross monthly income × 4%.
- Max payment = all-in budget − reserve.
- Loan amount = max payment × (1 − (1 + r)⁻ⁿ) ÷ r, where r is APR ÷ 12 ÷ 100 and n is months. Car price = loan + down payment.
Worked example
With these inputs: gross monthly income $5,000; loan apr 7%; loan term 4; down payment you have $4,000.
The result is car price to aim for $16,528.06, with max monthly payment $300.00 and loan amount $12,528.06.
Why 4 years?
Longer loans lower the payment but add interest, and cars lose value quickly. With a 6- or 7-year loan it's common to owe more than the car is worth for years (being "upside-down"). The calculator warns when the term is longer than 4 years.
Check the 4% reserve against your real costs
The tool sets aside 4% of income for insurance and fuel. If you have a long commute or high insurance rates, your real costs may be higher. Work out fuel with the Fuel Cost Calculator, get an insurance quote, and lower the price target if those two exceed the reserve.
Frequently asked questions
What is the 20/4/10 rule for buying a car?
20% down payment, a loan term of 4 years or less, and total monthly car costs under 10% of gross income.
How much car can I afford on $50,000 a year?
That's about $4,167 a month gross, so a 10% all-in car budget of about $417. After the 4% reserve for insurance and fuel, the payment limit is about $250 a month. Enter your APR and down payment to see the price.
Should I include my trade-in?
Yes. Add the trade-in value to the down payment field.
Is leasing covered?
No. Leases are priced differently. You can still use the max monthly payment line as a budget for a lease payment plus insurance.