The 20/4/10 rule for budgeting a car states you should make a 20 percent down payment, repay the loan in four years or less, and spend less than 10 percent of your monthly income on car payments.
The higher your down payment, the less you need to finance, lowering monthly payments and the overall cost of the loan. Shorter loan terms have higher monthly payments but will save you money on interest over the life of the loan because you’ll pay off the car more quickly.
Following the 20/4/10 rule helps promote responsible borrowing, keeps your car payments in line with a good budget, and allows you to better manage your overall financial health when buying a car.