Penny Runs the NumbersBy the 20/4/10 rule of thumb (20% down, a 4-year loan, payment plus insurance at most 10% of gross income), a $70,000 salary affords a car of about $24,606 at the Fed's average 7.54% APR. The average new-car loan of $41,705 would need a $133,939 salary. A 16% loan over 72 months costs $12,337 in interest, 36% of everything you pay.
What the calculator shows
Set your gross salary, the loan APR, the loan length, the down payment and your monthly insurance. The cards show the most expensive car the 20/4/10 rule allows, the total interest on that loan, and the salary you would need to carry the average new-car loan.
The default rate is the Federal Reserve's latest average for 60-month new car loans at commercial banks. The average loan size comes from the same Fed release, and insurance is the national average from the National Association of Insurance Commissioners.
What 20/4/10 means on real salaries
The rule keeps payment plus insurance under 10% of gross pay. At 7.54% over four years with $107 a month for insurance, that allows about $15,997 of car on $50,000 a year, $24,606 on $70,000, $37,521 on $100,000 and $46,131 on $120,000. In round terms: a car worth about a third of one year's salary.
The rule is a personal-finance rule of thumb, not a lending standard. Lenders routinely approve far larger loans, which is exactly why the rule exists.
Why longer loans and high APRs are a trap
Stretching the same $476 monthly payment from 48 to 72 months raises the price you can 'afford' from $24,606 to $34,398, but the interest more than doubles. At a 16% APR over 72 months, the same payment buys only $27,449 of car and $12,337 of interest, compared with $3,179 on a four-year loan at the average rate.
Questions
What is the 20/4/10 rule for buying a car?
Put at least 20% down, finance for no more than 4 years, and keep the car payment plus insurance at or below 10% of your gross income. It is a rule of thumb, not a regulation. Some versions also count fuel and maintenance, which lowers the result.
How much car can I afford on $70,000 a year?
With 20% down, a 48-month loan at 7.54% and $107 a month for insurance, the rule allows a car of about $24,606: a $19,685 loan with a $476 monthly payment.
What salary do I need for the average car loan?
The average new-car loan is $41,705 (Federal Reserve G.19). Over 48 months at 7.54% the payment is $1,009, and with $107 of insurance the 10% rule needs a gross salary of about $133,939. Over 84 months the needed salary falls to $89,701, but interest rises from $6,735 to $12,098.
Is a 16% car loan bad?
It is about twice the Fed's latest average of 7.54% for a 60-month new car loan. On a $476 monthly payment over 72 months, 16% means $12,337 of interest, 36% of everything you pay, and a car worth $27,449 instead of $34,398 at the average rate.
Sources and assumptions
- Average interest rate on 60-month new car loans at commercial banks, Q3 2026 (preliminary). Same table: 72-month 7.17%: Federal Reserve G.19 Consumer Credit, Terms of Credit (released 2026-11-06) (checked 2026-11-11)
- Average amount financed on new car loans at finance companies, Q2 2026 (average maturity 67 months, rate 6.3%): Federal Reserve G.19 Consumer Credit, Terms of Credit (released 2026-11-06) (checked 2026-11-11)
- National average auto insurance expenditure per insured vehicle, 2023: $1,281 a year (about $107 a month): NAIC, 2022/2023 Auto Insurance Database Report (released 2026-02-13) (checked 2026-11-11)
- 20/4/10 is a rule of thumb, not a regulation or a lender requirement. Lenders approve much larger loans.
- Car costs = loan payment + insurance only. Fuel, maintenance, registration and sales tax are not included.
- Down payment is a percentage of the car price; no trade-in, rebates or dealer fees.
- Fixed APR, monthly payments, no early payoff.
Last updated 2026-11-11.