The 20/4/10 rule, in plain English

The 20/4/10 rule is a fast sanity check that keeps a car from quietly wrecking your budget. It’s three limits, and a car that breaks any of them is probably more than you should spend.

20% down

Put at least 20% down. A big down payment lowers the amount you finance, cuts total interest, and — crucially — keeps you from owing more than the car is worth in the first couple of years, when depreciation is steepest.

4-year loan, max

Finance for no more than four years. If you can’t comfortably afford the payment on a 48-month loan, the car is too expensive — stretching to 72 or 84 months just hides that while piling on interest. See what a term does to your total with the car loan calculator.

10% of income on transport

Keep all car costs — payment, insurance, fuel, and maintenance — under 10% of your gross income. This is the one people forget, because they budget for the payment but not the running costs. The cost of ownership calculator adds them all up.