Mike Winters at CNBC looked at the 20-4-10 car-buying rule, 20% down, a four-year loan, and total transportation costs under 10% of gross income, and asked planners whether it still works. It mostly does not, and Edmunds data shows why: only 5.6% of new-vehicle loans in 2025 had 48-month terms.
My view is that the 20-4-10 rule is not wrong. It is calibrated for a car market that no longer exists. When the average new car costs close to $50,000 and the $20,000 vehicle is gone, a four-year loan produces a payment most households cannot carry, and the 10% ceiling is out of reach for a lot of two-car families.
The part of the rule that has always been right is the last part. Stop fixating on the monthly payment and think in percentage of gross income. The monthly payment is the number the dealer controls. The percentage of income is the number you control.
For buyers who cannot make 10% work, transportation costs closer to 12% to 15% of gross income may be a realistic target without straining the rest of the budget. That is generally a better trade-off than stretching a loan to 72 or 84 months just to shrink the payment, because the long loan adds interest and leaves you underwater when you want to sell. Buy less car on a shorter loan. The rule's spirit survives even if its numbers do not.
Read the full article at CNBC →
