How Much Car Can I Afford?
Learn the 20/4/10 rule and other budgeting strategies to determine how much you can truly afford to spend on your next vehicle.
The 20/4/10 Rule
A classic guideline for smart car buying:
Down Payment
Reduces your loan amount and interest
Year Loan (or less)
Keeps interest low and builds equity faster
Of Monthly Income
Total car costs shouldn't exceed 10% of gross monthly income
Example: $80,000 Annual Income
| Category | Recommended Amount |
|---|---|
| Monthly income | $6,667 |
| Max total car costs (10%) | $667 |
| Suggested loan term | 48 months |
| Suggested down payment (20%) | $6,000 |
With these numbers, you should aim for a vehicle price around $30,000.
Hidden Costs to Consider
Insurance Premiums
Higher for new cars and younger drivers
Maintenance & Repairs
Regular upkeep and unexpected fixes
Registration Fees & Taxes
One-time and annual costs
Fuel Costs
Monthly gas expenses
Quick Formula
Affordable Car Price = (Monthly Budget × Loan Term) + Down Payment – Taxes & Fees
Or, use our Car Affordability Calculator to instantly run the numbers.
💡 Bottom Line
By sticking to a budget and factoring in all costs, you can buy a car you love without risking financial stress.
Frequently Asked Questions
What percentage of my income should go to car payments?
The 20/4/10 rule suggests your total car costs (payment + insurance) should not exceed 10% of your gross monthly income.
Is it better to put more money down or get a shorter loan?
Both strategies reduce total interest paid. A larger down payment reduces the loan amount, while a shorter term reduces the interest rate you pay.
About AFC Team
AFC Team provides educational content about auto financing. Our calculators and guides are for informational purposes only and should not be considered financial advice. Always consult with qualified financial professionals for important financial decisions.