Jun 14, 2026
There’s an old test for whether you can actually afford a car. Put 20% down, finance for no more than four years and keep everything the car costs you — payment, insurance, fuel, maintenance — under 10% of your gross income. That’s the 20-4-10 rule, and financial planners have abided by it for decades.
The problem is passing that test isn’t so easy anymore. According to a new CNBC analysis, you’d need to earn about $120,000 a year to afford an average used car under this rule. For context, the median U.S. household earned $83,730 in 2024, according to the U.S. Census Bureau. In other words, an affordability rule that was meant for ordinary car buyers now assumes an income most people don’t earn.
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Still, financial planners aren’t abandoning it. If anything, they say it matters more now than ever, because the risk it guards against has only grown.
“Cars have quietly become one of the biggest wealth killers in the middle-class budget,” Mark Stancato, a certified financial planner at VIP Wealth Advisors, told CNBC.
Why an average used car now demands a six-figure income
It comes down to how much you spend on the car. According to Cox Automotive, the average used vehicle listed for $26,342 in April, up 3% from a year earlier.
Now run that used car through the 20-4-10 rule, the way CNBC did. According to the outlet, a 20% down payment comes to $5,268, leaving $21,074 to finance over four years at a 6.98% interest rate. That gets you to about $505 a month.
Then add the rest of what the car costs to own: about $190 a month for insurance, $201 for fuel, and another $100 or so for maintenance and repairs. That puts the total at roughly $996 a month, or close to $12,000 a year, on a used car.
Under the 20-4-10 rule, that means a buyer would need gross household income of about $120,000. And remember, this is the person who did everything by the book — bought used, put money down and kept the loan short.
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The four-year rule almost nobody follows
Once you run the numbers, it makes sense why so many buyers have moved away from the traditional buying rule for new and used cars.
An Edmunds report found that 48-month terms made up just 5.6% of financed new-vehicle purchases in 2025. Meanwhile, loans of 84 months or longer (seven years and up) hit a record 22.9% of financed new-car purchases in the first quarter of 2026. People are stretching the loan because the monthly payment looks easier to handle, even if the full cost ends up being a lot higher due to interest.
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“People don’t buy cars based on total cost anymore. They buy based on monthly payment, which is exactly how they end up in 72- or 84-month loans on a highly depreciating asset,” Stancato told CNBC.
What stretched loans cost you later
A longer-term loan makes a car look more affordable. The monthly payment shrinks, but the car is losing value the whole time, and you’re paying interest for longer.
The bill comes due at trade-in (when you swap your old car for a newer one). In the first quarter of 2026, 31% of trade-ins toward new-vehicle purchases carried negative equity (which means the owner still owed more than the car was worth) the highest share for any quarter since early 2021, according to Edmunds.
Those borrowers owed an average of $7,183. Once that debt gets rolled into the next car, the payment climbs again. Buyers who carried it forward ended up with an average payment of $932 a month, $159 more than the typical new-car buyer. That’s how one stretched loan turns into a more expensive problem.
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What this means for your money
The simple takeaway is don’t judge a car by the monthly payment alone. That number is built to feel manageable, but it does not tell you what the car is really costing you.
“Stop fixating on the monthly payment and think in percentage of gross income — that’s the part that has always been right,” Jeff Judge, a certified financial planner at Chesapeake Financial Planners, told CNBC..
If the usual 10% of gross income rule does not fit, he says a more realistic target is to keep total transportation costs in the 12% to 15% range of gross income. So for a household earning $70,000 a year, that would work out to roughly $700 to $875 a month for everything the car costs, not just the loan.
And to get under those numbers in the first place, Stancato suggests looking at a reliable used car that is three to five years old — still modern, still safe but old enough that the first owner has already taken the biggest depreciation hit.
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Godwin Oluponmile is a content specialist, SEO strategist and copywriter with seven years of expertise in finance, Web 3.0, B2B SaaS and technology. His work has been featured in publications such as Entrepreneur, HackerNoon, Blocktelegraph and Benzinga.
