ORLANDO, Fla. – For some readers, the headline is intriguing because you already know what it means. For others, you’re wondering “What is 20/4/10?”
20/4/10 is a budgeting guideline to help consumers pick out a vehicle that fits their budget instead of overspending. The buyer can be either a single earner or a household with a combined income.
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Here’s the logic, number by number:
- 20: Your down payment should be at least 20% of the purchase price
- 4: You should finance the car for no more than 4 years (48 months)
- 10: Your total monthly car costs – payment, gas, insurance, maintenance – should stay at or below 10% of your gross income
So, if you’re buying a new or used car, truck, or SUV, you should be putting down 20%, finance the vehicle for no more than 4 years, and make sure ownership of the vehicle isn’t eating up more than 10% of your income each month. Some outlets have even modified the guideline going with 20/3/8 instead of 20/4/10.
Either way, with today’s car prices (new and used), for most Americans, that math just doesn’t math anymore.
Let’s explore how hard it really is to make this formula work. Let’s start with the cost of new vehicles.
According to Cox Automotive and Kelley Blue Book, in December of 2025, the average new vehicle transaction price was $50,326, an all-time high for new car pricing. Why such a high average price – Americans love their midsize SUVs and full-size pickups and those are not cheap vehicles. In the last month of 2024, Americans bought 233,000 full size pickups at an average price of $66,386. Mid-size SUVs averaged $49,144 and even electric vehicles got pricier: In that same period, the average new EV cost $58,034.
Put simply, new vehicles are more expensive than they’ve ever been on average.
So – let’s say you keep expectations down and get a really good deal on a new vehicle at $50,000. With the purchase price of the car, let’s plug in our first number: 20.
Twenty percent of the price of a $50,000 vehicle is $10,000. That 20% is not an arbitrary amount – at 20% down, you’ve got a good chance of fighting off depreciation and keeping the dreaded “underwater” albatross at bay (negative equity: when you owe more than the car is worth). So, to get the 20% down, right off the bat, you’ll either need a down payment of $10k in cash or a trade of at least that much. Let’s say with your trade and a little more negotiating, you were out the door at a solid $42,000 after taxes, titles and other miscellaneous add-ons.
Next: How are you going to pay for that $42,000? The second part of the formula says you’ll be financing this for 4 years (48 months). Easy math says take $42,000 and divide it by 48. That answer is about $875 per month. However – you have to include the cost of the loan you’re taking out: Namely, what’s the interest rate?
Some new cars will come with an offer of 0% interest, but those rates are rare and pretty much only get plugged in when you have big down payments and really, REALLY good credit. For the rest of us: It’s financing from the dealership, a bank, or a credit union.
Let’s keep things simple: You’ve scored a pretty good new car loan at a rate of 6.5%. So, your $42,000 loan is now really $48,288 (principal of $42,000 and interest of about $6,288). That monthly payment on that loan will cost you $131 extra each month: $1,006 (6.5% interest) versus $875 (0% interest).
Now that we have your payment ($1,006 a month) we have to look at monthly expenses. What’s included here: gas, insurance, maintenance, parking, tolls, etc. Again, let’s go simple: Let’s throw maintenance out the door (your new car is under warranty). You’ve also got a driveway and a parking lot at work, so parking is mostly free. No tolls where you live (lucky you) and as for gas, let’s assume driving 12,000 miles a year costs you $1,600 (about $125 a month). For insurance: How about we go with $200 a month?
Time to add it all up: $1,006 a month for a car note, $125 a month for gas, and $200 a month for insurance.
Grand total: $1,331.
Now comes the truly painful part: Let’s plug that $1,331 into the last part of the equation, 10% of your monthly income. Since there are so many factors with taxes, FICA, 401k, health insurance, etc., we’ll do gross, not net.
If $1,331 was 10% of your monthly salary, you’d have to make about $13,310 each month. What’s that for a yearly salary?
About $159,720.
Earning roughly $159,000 puts an individual well above the vast majority of U.S. workers. According to the latest national income distribution data, the top 10 % of individual earners in the U.S. start at about $155,000 per year – meaning far less than 10% of Americans make more than $159,000. And according to the Bureau of Labor Statistics, the “median weekly earnings of the nation’s 121.5 million full-time wage and salary workers were $1,204 (gross) in 2025.“ Multiply that number by 12 and you’re looking at about $62,608 per year.
What’s our reality: To stick to the 20/4/10 rule you need to make almost $160k, while most Americans make around $62k. Even if two people combine to earn around $124,000 a year, they still fall well short of the income needed to keep this $50,000 car within the 10% rule.
The reality is this: For most individual Americans, sticking to 20/4/10 when buying a new car is unrealistic – 20/4/10 is even a stretch for dual income households.
So, what do we do?
Time to re-work the formula – and for that we have several different ways we can do it. Below we’ll run three different “what if” scenarios, sticking with the same $50,000 car, $42,000 out the door, and a salary of about $62,608. Each of these scenarios below keeps the same car and the same income – the only thing that changes is the rule.
Option A: Keeping 20% Down but Bending the Rest:
In this first scenario, we’re going to go with 20/6/20. The buyer will put down the same 20% but instead of financing for 4 years, they’re stretching it to 72 months (6 years). In this scenario, the interest rate also increases (for our example, from 6.5% to 7.5%). The monthly income commitment to the car rises from 10% to 20%. The numbers:
- 20% = $10,000
- 6 Years = Monthly payment of about $724 a month (7.5% loan)
- 20% of Salary = $1,049 per month (total transportation costs of $724 + $325)
- Annual Salary = About $62,940 ($5,245 per month)
In this scenario, the “required” income is only about $300 above the median worker’s income, which is effectively right on the money. Bottom line: To make this example car affordable to a median-income worker, the rule has to double the share of income devoted to transportation and extend the loan by two full years.
Option B: Keeping a 4-Year Loan, but Paying More Everywhere Else:
In this second scenario, we’re going from 20/4/10 to 25/4/20. Instead of 20% ($10,000) down, the buyer comes up with slightly more: 25% down ($10,500). Financing stays the same at 4 years (48 months) and 6.25%. The monthly income commitment to the car rises again from 10% to 20%. The numbers:
- 25% = $10,500
- 4 Years = Monthly payment of $742 a month (6.25% loan)
- 20.4% of Salary = $1,067 per month (total transportation costs of $742 + $325)
- Annual Salary = About $62,760 ($5,230 per month)
In this scenario, the yearly salary is off by about $142 – negligible and very close to the target income. Bottom line: To make this example car affordable to a median-income worker, the rule now requires an extra 5% down and still doubles the share of income devoted to transportation. The loan term still lasts 48 months.
Option C: Keeping the 10%, No Matter What
Alright – hold on to your horses. In this third scenario, we’re going from 20/4/10 to 65/8/10! Instead of 20% ($10,000) down, the buyer puts down a whopping 65% ($27,500). Financing also jumps (dramatically) from 4 years (48 months) to 8 year (96 months). The interest would also jump from 6.25% to a theoretical 8.5%. The loan payment, however, plunges from over $1k a month to $197 a month.
- 65% = $27,500
- 8 Years = Monthly payment of $197 a month (8.5% loan)
- 10% of Salary = $522 per month (total transportation costs of $197 + $325)
- Annual Salary = About $62,608 ($5,217 per month)
If buyers insist on keeping the final “10” in the 20/4/10 formula, the numbers quickly become extreme. On a $42,000 vehicle financed over eight years at 8.5%, a median-income worker would need to put down roughly $27,500 – nearly two-thirds of the purchase price – just to keep transportation costs under 10% of his or her income.
This isn’t budgeting, it’s fantasy math. Almost no one can, or will, put nearly two-thirds down on a $42,000 car.
Option D: Making the Original 20/4/10 Rule Actually Work
Ok, now let’s flip the problem around.
Instead of bending the down payment, stretching the loan, or blowing past the income rule, let’s do the one thing the math actually demands: Back into the price of a car that works with the original formula.
We’re keeping the rule exactly as written (20/4/10):
- 20% down
- 4-year loan (48 months)
- 10% of gross monthly income
We’re also keeping the same assumptions for income and basic ownership costs (by the way, “≈” means approximately equal to):
- With a salary ≈ $62,608
- Monthly gross income ≈ $5,217
- 10% cap ≈ about $522 per month which includes costs of gas ($125/month), insurance ($200/month), and a car note ($197/month)
So, using the 20% down, 48 months of payments at 6.25% interest, and a $197/monthly payment based on your $62,608 salary, our median income American should be:
- Financing about $8,500
- Putting down $2,100
- Purchasing a vehicle for about $10,600
The numbers:
- 20% down ≈ $2,100
- 4 Years = Monthly payment of about $197 (6.25% loan)
- 10% of salary = $522 per month (total transportation costs of $197 + $325)
- Annual salary = About $62,608 ($5,217 per month)
- Total vehicle price ≈ $10,600
The Reality Check
To follow the original 20/4/10 rule to the letter, a median-income worker can realistically afford a car that costs around $10,000 – $11,000 total, before taxes, fees, and add-ons. That’s not a new car, or most used cars on dealer lots today. And it certainly doesn’t look like the average vehicle Americans are buying.
If buyers want to follow 20/4/10 exactly, the rule still works – but only for a car most Americans can’t realistically find or don’t want to drive.
The math isn’t broken; the market is. The original 20/4/10 rule was built for a car market and interest-rate environment that no longer exists.
If there’s one way to make 20/4/10 sensible again, follow these three tips:
- Delay the purchase and build a larger down payment
- Buy less car than the average buyer – smaller, older, fewer options
- Plan to keep the vehicle longer to spread out depreciation
Future you will thank you later.