Guide · Cars
How much should my car payment be?
The short answer
Keep all car costs around 10% of your take-home pay, put 20% down, and finance for 4 years or less. On $4,000 a month take-home, that's a loan payment of about $340.
The 20/4/10 rule
20% down, a loan of 4 years or less, and total car costs under 10% of income. The down payment and short term keep you from owing more than the car is worth; the 10% cap keeps a car from quietly eating your budget. Insurance and gas count too, so we set aside about 15% of that 10% for them and leave the rest for the loan.
The payment and car price that fit your pay
At 7.5% APR over 48 months with 20% down. Tap a loan amount for payments at other rates and terms.
| Take-home / month | Loan payment | Loan | Car price |
|---|---|---|---|
| $3,000 | $255 | $10,546 | $13,183 |
| $4,000 | $340 | $14,062 | $17,577 |
| $5,000 | $425 | $17,577 | $21,972 |
| $6,000 | $510 | $21,093 | $26,366 |
| $8,000 | $680 | $28,124 | $35,155 |
| $10,000 | $850 | $35,155 | $43,943 |
Why a longer loan isn't a cheaper car
Stretching from 48 to 72 or 84 months lowers the payment but adds thousands in interest, and you stay underwater longer, which hurts if you need to sell or the car is totaled. Dealers like to ask “what monthly payment works for you?” because a long term can make almost any price fit. Negotiate the price and the APR instead. The car payment chart shows the interest by term for every loan size.
Your rate matters more than you'd think
The same payment buys noticeably less car at a higher APR. Get pre-approved at your bank or credit union first, then let the dealer try to beat that rate. If you're buying new, some new-car loan interest may now be partly tax-deductible: here's who qualifies.
Frequently asked questions
What percentage of my income should go to a car payment?
The 20/4/10 guideline keeps all car costs (loan payment, insurance and gas) around 10% of your income. Some versions use gross income; we use take-home pay to stay on the safe side. On $4,000 a month take-home, that leaves a loan payment of about $340.
What is the 20/4/10 rule?
Put at least 20% down, finance for no more than 4 years, and keep total car costs under 10% of your income. It keeps you from owing more than the car is worth and limits how much of your pay a car can absorb.
Is a 72- or 84-month car loan a bad idea?
Usually. The payment is lower, but you pay much more interest and stay "underwater" (owing more than the car is worth) for longer. If only a 72-month loan makes the payment work, the car is probably more than your budget.
Does my credit score change how much car I can afford?
Yes. The same payment buys less car at a higher APR, because more of each payment goes to interest. Get a pre-approval from your bank or credit union before visiting the dealer so you know your real rate.
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