How much car payment can I really afford?

Maximum all-in transportation budget by gross income

Why 10/4/20 exists

The 20% down payment offsets first-year depreciation (15–20% on most new cars), keeping you from going underwater on the loan. The 4-year cap prevents 6- and 7-year loans where you owe more than the car's worth for years. The 10% income limit leaves room for the 5–6% of income that insurance, fuel, and maintenance typically eat.

The real all-in cost most people miss

AAA's annual driving-cost study puts the true cost of a new vehicle at roughly $12,000/year (about $1,000/month) including depreciation, fuel, insurance, maintenance, fees, and finance charges. That's well above what the loan payment alone suggests.

Frequently Asked Questions

Is leasing cheaper than buying?

Lower monthly payment, higher lifetime cost. Leasing makes sense only when you genuinely value driving a new car every 2–3 years and accept the trade-off. Long-term, buying and holding a vehicle 8+ years almost always wins on total cost.

What about a 72- or 84-month loan?

Avoid both. The longer term gets you a lower monthly payment but you'll be underwater on the loan for years and pay 40–60% more in total interest. If you can only afford the payment with a 6-7 year loan, the car is too expensive for your budget.

Does a low APR change the math?

A bit. Manufacturer 0–3% APR promotions can shift the rent-vs-own equation slightly, but the 10/4/20 framework holds because depreciation, not interest, is the dominant cost of new-car ownership.

Sources

• Your Driving Costs (annual study) , AAA. Verified May 1, 2026.