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10% Rule Formula:
10% of income for car payment.
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The 10% car affordability rule is a financial guideline suggesting that your monthly car payment should not exceed 10% of your gross monthly income. This helps ensure your car expenses remain within a manageable portion of your budget.
The calculator uses the simple formula:
Where:
Explanation: This calculation provides a conservative estimate for car affordability based on your income.
Details: Following this rule helps prevent overextending your budget on transportation costs, leaving room for other expenses like insurance, maintenance, and savings.
Tips: Enter your gross monthly income before taxes. The calculator will show the maximum recommended monthly car payment according to the 10% rule.
Q1: Does this include insurance and maintenance?
A: No, the 10% rule typically refers just to the car payment. You should budget additional amounts for insurance, fuel, and maintenance.
Q2: Is this before or after taxes?
A: The rule is based on gross (before-tax) income, but some experts recommend using after-tax income for more conservative estimates.
Q3: What if my other debts are high?
A: If you have significant other debts, you might want to use an even smaller percentage (like 8%) for car payments.
Q4: Does this apply to leasing too?
A: Yes, the 10% rule applies whether you're financing or leasing a vehicle.
Q5: How does this compare to the 20/4/10 rule?
A: The 20/4/10 rule is more comprehensive (20% down, 4-year loan, 10% of income), while this calculator focuses just on the payment portion.