The 20/4/10 rule for buying a car, with a calculator
Three limits on a car: how much down, how long the loan, and how much of your pay all of it can take. The formula, the math and a max price calculator.
Checked October 22, 2026
What the 20/4/10 rule says
Chase describes three parts:
- 20% down. It builds equity from the day you buy and changes the loan you qualify for and the interest you pay overall.
- 4 years or less. Shorter loans accrue less interest if payments are on time, and may carry lower rates.
- 10% or less of gross pay. Counted on gross monthly income and covering the payment, insurance, maintenance and fuel together.
Chase says the rule is not a one-size-fits-all formula, and that your own finances decide how closely to follow it.
Where the 20/4/10 rule comes from
The Chase page does not say, and we found no author, so it is a rule of thumb. We make no claim about its age or origin.
The loan formula, step by step
A car loan is paid in equal monthly amounts. For a payment P, a monthly rate r (the yearly rate divided by 12) and n months, the biggest loan L that payment covers is:
L = P x (1 - (1 + r)^-n) / r
With 20% down, the loan is 80% of the price, so the price is L / 0.80. If the rate is 0%, the formula is just L = P x n.
A worked example on $6,000 a month before tax
Suppose insurance, fuel and upkeep run $250 a month, and the loan is 48 months at 6% a year. These two inputs are examples, not quotes. Your rate comes from a lender.
| Step | Math | Result |
|---|---|---|
| All car costs, at most | $6,000 x 0.10 | $600 |
| Left for the loan payment | $600 - $250 | $350 |
| Monthly rate | 6% / 12 | 0.5%, or 0.005 |
| Factor | (1 - 1.005^-48) / 0.005 | 42.58 |
| Biggest loan | $350 x 42.58 | about $14,900 |
| Car price with 20% down | $14,900 / 0.80 | about $18,600 |
| Down payment | $18,600 x 0.20 | about $3,700 |
Chase warns about this squeeze: a 4-year term can make the payment high enough that the 10% limit narrows the cars you can consider.
Max car price calculator
The rate shown is a placeholder. Use the one a lender quotes you. Nothing you type here leaves this page.
- All car costs, at most10% of pay before tax$600
- Left for the loan paymentafter insurance, fuel, upkeep$350
- Biggest loan that payment covers$14,903
- Car price, with 20% downloan is 80% of the price$18,629
- Down payment20% of the price$3,726
Sales tax, title and fees are not included. Add them to the cost of the car if they are not in your down payment.
The 20/4/10 rule for a couple with two incomes
If you buy a car together, the 10% can come from both gross pays. With $6,000 and $4,000 a month before tax, 10% is $1,000 for car costs. That might cover one shared car, or the cost of two. If each of you drives your own, the rule fits better applied to each pay (10% of $6,000 is $600, and 10% of $4,000 is $400).
Who pays the shared car is the part the rule leaves out. 50/50 puts $500 on each, which is 8% of one pay and 13% of the other. Splitting by income, 60% and 40%, puts $600 and $400, 10% of each. TD Bank says 50/50 works well when both earn similar amounts and suggests a proportional split when they do not. See how to split bills based on income.
When the 20/4/10 rule doesn't fit
- Saving 20% takes time. Chase says it may delay the purchase, and the amount grows with the price.
- Short loans mean big payments. That can break the 10% cap for most cars.
- Your costs differ. Insurance and fuel vary a lot by where you live and what you drive. Put in your own numbers.
- You are weighing a lease. The rule is about buying with a loan. See lease vs buy a car.
Questions people ask
What is the 20/4/10 rule for buying a car?
Put 20% down, finance for 4 years or less, and keep your transportation costs at or below 10% of your gross monthly income. Chase describes it this way.
What does the 10% in the 20/4/10 rule include?
All the transportation costs, not just the loan: the car payment, insurance, maintenance and fuel. Chase bases it on gross monthly income, which is pay before taxes.
How do you calculate the 20/4/10 rule?
Multiply your monthly pay before tax by 0.10, take off insurance, fuel and upkeep, and what is left is the most for the loan payment. Turn that payment into a loan size with the loan formula on this page, then divide by 0.80 to get the price with 20% down.
Who made up the 20/4/10 rule?
We could not find out. The Chase page does not say, so it is a rule of thumb.
Is a 4 year car loan too short?
Chase says shorter terms accrue less interest if payments are made on time. It also warns a 4-year term can make the payment much higher, which can push you past the 10% limit and narrow the cars you can consider.
How does 20/4/10 work for a couple?
If you buy together, you can use both gross incomes for the 10%, but the rule does not say who pays. Our guide on splitting bills by income covers the choices.
Sources
2 sources · read October 22, 2026
Every number on this page comes from chase.com and td.com. If a source has changed since, the source is right.
Wonderful gives general information. It isn't a financial or tax advisor.