20/4/10 Rule Calculator

How the 20/4/10 Rule Calculator works

The 20/4/10 rule is a popular car-buying heuristic: put down at least 20% of the car's price, finance for no more than four years, and keep all vehicle-related expenses—loan payment, insurance, fuel, and maintenance—under 10% of gross annual income. This calculator computes the maximum car price that satisfies a user-defined deposit percentage, loan term, transport budget, and interest rate. It starts with a monthly transport budget (gross income divided by twelve, multiplied by the chosen percentage), then works backward through an amortisation equation to find the largest loan principal that can be repaid within that budget, and finally inflates that principal by the inverse of the deposit percentage to yield the maximum purchase price.

The formula

The monthly budget is B = (gross annual income ÷ 12) × (transport % ÷ 100). The maximum amount that can be financed is calculated from the standard loan amortisation formula rearranged for principal: P = B × [(1 − (1 + r)^(−n)) ÷ r], where r is the monthly interest rate (APR ÷ 100 ÷ 12) and n is the number of monthly payments (loan years × 12). When the APR is zero, the formula simplifies to P = B × n. The maximum car price is then Price = P ÷ (1 − deposit % ÷ 100), and the deposit is Price × (deposit % ÷ 100).

Where this method is most accurate

The calculation is mathematically exact for simple-interest, fully amortising loans with constant monthly payments. It assumes that the entire monthly transport budget can be allocated to the loan payment; in practice, insurance, fuel, servicing, and road tax reduce the amount available for repayment. The rule originated as a budgeting guideline in personal-finance literature and does not account for purchase taxes, registration fees, or variations in running costs across different vehicle types. Users with volatile or seasonal income may find that a percentage of gross annual income does not reflect their actual monthly cash flow.

What this tool does not do

This calculator does not incorporate insurance premiums, fuel costs, maintenance schedules, or jurisdiction-specific taxes and fees. It does not provide affordability advice, loan approval predictions, or vehicle recommendations. The output is a mathematical maximum price under the specified constraints; it does not certify that any particular vehicle is suitable, roadworthy, or insurable. The tool accepts any deposit percentage and loan term within the slider range, even if they fall outside the traditional 20% and four-year guideline.

Disclaimer

This tool is provided for educational and informational purposes only. It performs a mathematical calculation based on user-supplied inputs and does not constitute financial advice, vehicle purchase recommendations, or creditworthiness assessment. Actual loan terms, insurance costs, and total cost of ownership vary by lender, vehicle, and individual circumstances. Users are responsible for verifying all figures and consulting qualified professionals before making any financial or vehicle-purchase decisions.