What is the 20 4 7 rule?

Asked by: Dashawn Johns  |  Last update: March 18, 2024
Score: 4.5/5 (37 votes)

Here's what the 20/4/7 rule looks like, according to Morris: “Put at least 20% down of the initial purchase price. Finance an auto loan for no more than 4 years (48 months). Make sure that monthly payments add up to less than 7% of your gross income.”

What is the 20 4 7 rule for buying a car?

20% down — be able to pay 20% or more of the total purchase price up front. 4-year loan — be able to pay off the balance in 48 months or fewer. 10% of your income — your total monthly auto costs (including insurance, gas, maintenance, and car payments) should be 10% or less of your monthly income.

Is the 20 4 10 rule good?

The 20/4/10 rule helps you determine the ideal amount to spend on a car by specifying how much down payment to offer, the length of the loan term and the percentage of your income to devote to car-related expenses. Following this rule can help you buy a car you can afford and enjoy for years to come.

How much should I spend on a car if I make $100000?

Starting with the 1/10th guideline, created and pushed by Financial Samurai, this guideline states: buy a car in cash that costs less than 1/10th your gross annual pay. If you make $50,000 you should buy a car in cash worth $5000. If you make $100,000, the car you buy should be worth no more than $10,000.

Is it better to put a larger down payment on a car?

A larger down payment protects against depreciation because the equity acts as a buffer. Since you own a greater portion of your car from the start with a higher down payment, you are less likely to get stuck paying for a loan that costs more than you could sell your car for.

How Much Car Can I Afford (20/4/10 Rule)

21 related questions found

Is it smart to put 50% down on a car?

Not only does this show lenders how dedicated and serious you are to pay back the loan, investing some of your own cash into this purchase motivates success. You'll really see changes for the financial better in your car loan when you make a really large down payment, about 50%.

What is a good down payment for a 30k car?

Consider putting at least $6,000 down on a $30,000 car if you're buying it new or at least $3,000 if you're buying it used. This follows the guidelines of a 20% down payment for a new car or a 10% down payment for a used car.

How much mileage is too much for a used car?

It can be somewhat risky to buy a vehicle that has racked up more than 100,000 miles. Even if it's well-maintained and has about 100,000 miles left in it, such a car is already past its prime. Generally, vehicles are likely to start experiencing problems after the 100,000-mile mark.

What car can I afford with 50k salary?

How much car can I afford if I make $50,000? While it depends on factors like your credit score, loan terms, down payment and any potential trade-in value, you may find that a vehicle in the $20,000 to $35,000 range will fit your budget.

What car can I afford with 80k salary?

you comfortably afford under an 80 000 salary. a volkswagen golf gti audi a3 a toyota. avalon the kia stinger and the cadillac ct4.

How many years is best to finance a car?

Even though the majority of car buyers are going with long-term car loans, is an auto loan of 72 months or more a good idea for you? NerdWallet recommends financing new cars for no more than 60 months and used cars for no more than 36 months.

What is the money guy rule for buying cars?

The 20/3/8 rule stand for:

20% down. Finance no longer than 3 years. Total car payment is no more than 8% of gross income.

When buying a car you should aim to pay?

What is the 20/4/10 Rule?
  1. You can make a down payment of 20% or more when purchasing the car.
  2. You can take out a car loan with a term of four years or less.
  3. You can have your total transportation costs—not just your car loan—be less than 10% of your monthly income.

How much should I spend on a car if I make $60000?

How much should I spend on a car if I make $60,000? If your take-home pay is $60,000 per year, you should pay no more than $750 per month for a car, which totals 15% of your monthly take-home pay.

How much should I spend on a car if I make $200000?

Financial experts answer this question by using a simple rule of thumb: Car buyers should spend no more than 10% of their take-home pay on a car loan payment and no more than 20% for total car expenses, which also includes things like gas, insurance, repairs and maintenance.

What is the 50 30 20 rule for car payments?

Balance Your Budget

50% for needs like housing, food, and transportation. In this case, the monthly car payment and other related auto expenses fit into this category. 30% for wants like entertainment, travel, and other nonessential items. 20% for savings, paying off credit cards, and meeting long-term financial goals.

How much car can I afford making $100,000 a year?

Meaning: put 20% down, pay over 4 years (48 month finance), and spend no more than 10% of your income on car payments. So if you make $100,000, you can pay $10,000 per year on a car. That's after 20% down and should include insurance, gas, and maintenance. So, assuming you want a $100,000 car.

How much should I spend on a car if I make $300000?

Other experts say that a vehicle that costs roughly half of your annual take-home pay will be affordable. Then some frugal personal-finance gurus say you should spend no more than 10%-15% of your annual income on a vehicle purchase.

How much car can I afford making $70,000 a year?

How much car can I afford with a 70k salary? Based on the 20/4/20 rule, with an average interest rate, you can afford a $19,000-20,000 car on your $70k salary.

Which car brand is the most reliable?

Lexus and Toyota took the top spots for brand reliability this year, followed by Mini, Acura, Honda, and Subaru. And while people are buying more EVs, CR's members experienced 79% more problems with them compared to gas-powered cars.

What used vehicle has the least amount of problems?

According to a recent study by Consumer Reports, Toyota and Lexus were the most reliable vehicles in 2022. After Japanese cars, BMW was ranked third, while Mercedes' reliability was rated the lowest.

Is a 10-year-old car too old?

A car that is ten years old might be perfectly fine for your needs, but chances are if you are looking at a car that is over 20 years old, you will find more problems than it's worth.

What is a good credit score to buy a car with no down payment?

Your credit score is crucial to determine your eligibility for a no down payment car loan. Most lenders require a FICO credit score of at least 680 before you can qualify. If your credit score falls below 680, improve your credit score before you apply to help you qualify in the future.

How much a month would I pay for a 30k car?

If you have been qualified for a $30,000 car loan, the monthly payment depends on the amount of the down payment, interest rate, and loan length. For example, with a down payment of $2,500, an interest rate of 5%, and a loan length of three years, you will have to pay $824.20/month.

When buying a car a blank down payment is recommended?

In general, you should strive to make a down payment of at least 20% of a new car's purchase price. For used cars, try for at least 10% down. If you can't afford the recommended amount, put down as much as you can without draining your savings or emergency funds.