A longer term shrinks the payment but grows the total interest and keeps you paying on a depreciating asset for years. If you need more than 48 months to afford the payment, the rule says the car is too expensive — the term is part of the price.

The rulebook · Form CA-11

The 20/4/10 Rule Form CA-11

The car-buying rule financial planners cite most, in three lines. It is deliberately strict — that is the entire point. Here is what each line means, what it costs you on a $75,000 salary, and when to break it.

20Put 20% down

Cars lose value fastest in year one. Twenty percent down means you start with equity instead of starting underwater — owing more than the car is worth. A small down payment on a long term is how people end up owing $18,000 on a car worth $14,000. On the $19,575 car this rule approves at $75k, that is $3,915 down.

4Finance for 4 years, max

A longer term shrinks the payment but grows the total interest and keeps you paying on a depreciating asset for years. The rule treats the term as part of the price: if you need 60 or 72 months to afford the payment, the car is too expensive. On a $15,660 loan at 7%, 48 months costs $2,340 in interest; 72 months would cost $3,563.

10Total car costs under 10% of gross income

Not 10% for the payment — 10% for everything: payment, insurance, fuel, maintenance. On $75,000 that is $625 a month total. With $150 of insurance and $100 of fuel set aside, $375 a month is left for the payment — which at 7% over 48 months supports a $15,660 loan, a $19,575 car with 20% down.

The $75,000 worked example

Gross monthly income$6,250
Total car cap (10%)$625/mo
Insurance + fuel$250/mo
Payment budget$375/mo × 48
Max loan at 7% APR$15,660
Max car price (20% down)$19,575

The gold standard

When to break it

The rule is a guardrail, not a law. Break the 4-year line knowingly if the rate is genuinely low and you invest the difference — but count the interest honestly first. Break the 10% line if your housing costs are unusually low and the car is the priority — the 15% payment rule is the realistic ceiling most buyers actually live under. What the rule forbids is breaking all three lines at once: small down payment, long term, big payment. That combination is where car debt quietly eats a budget.

Run the strict mode on your own numbers — the slip checks your down payment against 20%, caps the term at 48 months, and prices insurance and fuel as real lines.

Common questions Form CA-11

What is the 20/4/10 rule?

Put at least 20% down, finance for no more than 4 years, and keep your total car costs — loan payment plus insurance, fuel, and maintenance — under 10% of your gross monthly income. On $75,000 that is a $625-a-month total cap, which leaves about $375 for the payment once $250 of insurance and fuel are set aside.

Why 20% down?

Because cars lose value fastest in the first year. Twenty percent down means you start with equity instead of starting underwater. On the $19,575 car the rule approves at $75k, that is $3,915 down.

Why only 4 years?

A longer term shrinks the payment but grows the interest and keeps you paying on a depreciating asset for years. On a $15,660 loan at 7%, 48 months costs $2,340 in interest versus $3,563 at 72 months. If you need the longer term to afford the payment, the car is too expensive.

Is the 10% of gross income or take-home?

Gross — before taxes. And it covers everything: payment, insurance, fuel, maintenance. That strictness is the point: it is the number that makes the car incapable of hurting your finances.