# How much car can you afford? The 20/4/10 rule

A common line is to keep everything a car costs you each month under about 15% of your income: the payment, plus fuel, insurance, upkeep and parking. The price on the windscreen is the smaller part of the question. A car you can buy but cannot comfortably run is the expensive mistake. Type your income, the payment and the running costs to check one.

## What does a car really cost each month?

More than the payment. Count all of it:

| Cost | Often forgotten because |
|---|---|
| Payment | it is the only one advertised |
| Fuel or charging | it is paid in small amounts |
| Insurance | it is paid once or twice a year |
| Service and repairs | they come irregularly |
| Tyres | they come every few years |
| Registration and tax | they are yearly |
| Parking and tolls | they are daily and small |

Divide the yearly ones by twelve and add them to the monthly ones. For many cars, the running costs come close to the payment itself.

## What is the 15% line?

A simple check: all car costs together, divided by your income after tax.

On an income of 3,000, the line is 450 a month.

| Payment | Running costs | Total | Share of income |
|---|---|---|---|
| 200 | 200 | 400 | 13%: within the line |
| 300 | 250 | 550 | 18%: 100 over |

The second car costs only 100 more to finance, and it is the one that does not fit. Looked at through the payment alone, both seem fine.

## What is the 20/4/10 rule?

A stricter version, for cars bought on finance:

- **20%** of the price paid up front
- **4 years** at most to pay the rest
- **10%** of your income, at most, for all car costs

Few people meet all three. It is still a useful test: if a car only fits with nothing paid up front and seven years of payments, it is too much car for the income.

## Why does the length of the payments matter?

A longer plan lowers the monthly amount and raises the total. It also keeps you paying for a car that is losing value the whole time.

After several years you can owe more than the car is worth. Selling it then does not clear what you owe. A shorter plan on a cheaper car avoids this.

How interest adds up month by month is explained in [how credit card interest works](/blog/how-does-credit-card-interest-work). Car finance follows the same math, usually at a lower rate.

## New or used?

A new car loses a large part of its value in its first years, whoever drives it. A car that is two to four years old has already lost that part, and still has most of its life left.

Used cars need more care when buying: a service history, an independent check, and some money kept back for the first repairs. That is still usually less than the value a new car loses.

## Should I save up or pay monthly?

Paying in full costs no interest and leaves you free of a monthly bill. Saving for it works like any goal with a price and a date, as shown in [how long it takes to save for a goal](/blog/how-long-to-save-for-a-goal).

If you do finance, pay as much as you can up front and keep the plan short. A good habit is to start setting aside the future payment a few months before buying. It builds the first payment, and it tests whether your budget can carry it.

## What about the costs that come later?

Tyres, a service and the yearly insurance are certain. Give them a monthly amount in a separate pot, so they do not arrive as a shock. The method is in [what a sinking fund is](/blog/what-is-a-sinking-fund).

## How does a car fit with rent and the rest?

Home and car are the two largest fixed costs for most people. With rent near 30% of income and a car near 15%, almost half is spent before food.

If your rent is already high, the car has to be smaller, and the other way round. Check the home side in [how much rent you can afford](/blog/how-much-rent-can-you-afford).

## What if I already have a car that costs too much?

- **Compare insurance** every year. The same cover often costs less elsewhere.
- **Pay extra on the finance** when you can, to shorten it.
- **Ask whether you need it daily.** A car used twice a week may cost more than the alternatives.
- **Sell and buy cheaper** if the gap is large. Losing a little now can be better than paying too much for years.