I saw the video the other day and it has "To afford a car one needs to have 20/4/10 rule". Do you need to put 20% down payment for 4 years and the payment shouldn't be more than 10% of your income?

Taking that into account it is really hard to afford a car for me as

  1. I can never have 8k down payment
  2. 4 years is on
  3. The monthly amount is so less than no decent car would come.

This totally throws me off as I was always going against the rule.

I ask this because about debt management I realized I am in deficit and need to re evulate.

  • 7
    Where in the world are you, and what currency are you using in your question? If 8k is 20% of the price, that means you're trying to buy a car for 40k. If this is US (and USD), there are definitely far cheaper options.
    – yoozer8
    Commented Apr 29, 2022 at 14:17
  • I feel like car loan principle and interest are low enough that down payment only makes sense if you want/need a lower payment and cannot find a suitable cheaper option. Term lengths are about commitment. A year is a long time, nevermind 6 or 7 for a loan.
    – user26460
    Commented Apr 29, 2022 at 19:21
  • @yoozer8 u r right. The car is priced at 40k. I am in UK and I earn in pounds. The reason to post this question is I m re-evaluating all things as I m in deficit and cannot give back car before lease has ended.
    – localhost
    Commented Apr 30, 2022 at 0:03
  • 7
    If you’re at all short of money, you need to stop buying new or nearly new cars. You can get a very decent and reliable car for £8K or less, so don’t go spending £40K.
    – Mike Scott
    Commented Apr 30, 2022 at 2:14

3 Answers 3


These kind of rules are actually "guidelines":

  • if you do not comply them nobody is going to punish you for that.
  • they are the opinion of some people, and not a law of physics:
    • Some other people may disagree with that guidelines.
    • Or where the limits should be (why 20% downpayment and not 15% or 25%?.
    • And the application is actually more fuzzy than what the rules suggest (it won't matter much if the downpayment you have is 19.9% or 20.1%, but a hard limit is easier to calculate against).
  • even if most people agree with them, they might not be valid to your personal situation. E.g. maybe your rich uncle is about to die and he has told you that you will be in for a lot of money. Or maybe your car allows you to travel faster and get a second job to get more money to pay for it.

That said, it is worth considering them to see what insights they give about your particular situation:

  • If you are not able to save 8k, it means that you do not have many extra spending capacity. Adding to that extra expenses in the form of car credit payments will not be good.

  • Cars are not usually the only spending. If you spend more than a given proportion of you income (be it 5%-10%-15%) it will be adding to other percents (like the 35% for mortgage-rent) and you will be overspending. But maybe it does not apply to you because you live with your parents who provide you with shelter/food for free, so almost all of your income is at your disposition.

If you see that you are not following the guideline, it might be telling you that you would be incurring a significant risk of overspending, getting a debt you cannot pay, and end without car and with a significant debt.

In this situation, you should start considering alternatives. Do you need a 40K car? Really? What for? Can not you buy a 15K or 20K car (or even a cheaper one, if you know how to deal with that market)?

It is up to you to honestly think about your situation and try to figure what is best for you.

  • 1
    8k as 20% means a 40k car, not 32k. If this is USD, then yes, cheaper alternatives should absolutely be considered. But if if is 40k of another currency, it may be the cheapest option available in that region
    – yoozer8
    Commented Apr 29, 2022 at 14:16
  • Well spotted @yoozer8, thank you. The OP's profile locates him at the UK, so it could even be 40k pounds.
    – SJuan76
    Commented Apr 29, 2022 at 16:05

I prefer a 100/0/0 rule myself. I buy a new(ish) car only when I have saved up enough money to afford it. But doing that would require you to have enough spare money to buy a decent used car.

There's "good debt" and "bad debt". No debts are ideal, but if borrowing money will leave you better off in the long run, it's "good debt". Buying a house with a mortgage, and buying a car that you need to get to work could fall into that category.

"Bad debt" is when you see something pretty and shiny and have to buy it now. By the time you add up all the interest payments, you would have been better off saving up and buying it later. Too many bad debts, and more and more of your income goes straight to making payments on debts every month.

So think about whether or not you actually need a new car now, and whether the ones you are looking are more expensive than you really need. Then consider affordability. The 10% figure is pretty arbitrary. You need to work out how much spare money you actually have to make the payments, not some arbitrary percentage that somebody came up with.

  • Buying a house with a mortgage is only "good debt" because you don't have an alternative. If houses did not cost 10+ years worth of income, mortgages would be bad debt. Commented Apr 29, 2022 at 11:38
  • 2
    @user253751 No, mortgages are "good debt" because houses generally don't decrease in value over time (unlike cars, boats, etc.). In other words, you should never be "underwater" in a mortgage unless you either start that way or buy in a bubble.
    – D Stanley
    Commented Apr 29, 2022 at 17:38
  • @DStanley how do you tell if it's a bubble? Were used cars in 2019 "good debt" because car prices went up since then? Commented May 2, 2022 at 12:02

The core point of that rule is to help you to not overextend yourself.
If you borrow more or for longer, you will end up spending most of your free income for interest and rates for years to come, and your financial situation might get tighter. Four years from now, you will be at best in the same spot.

But of course you are free to ignore those recommendations. It's your life and your money, and if you like to be in that or worse financial position forever, go ahead.

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