Short answer
Under the 20/4/10 rule, total car costs stay under 10% of income. At $5,000 a month take-home, that is $500, which leaves $200 for the loan after $300 of insurance and running costs.
1. Step 1: set a total car budget
Multiply your monthly income by 10% (strict) or 15% (looser). This number must cover the loan payment, insurance, fuel or charging and maintenance, not just the payment.
2. Step 2: subtract insurance and running costs
The tables assume $160 a month for insurance and $140 for fuel and maintenance, $300 in total. Replace these with your own quotes.
3. Step 3: turn the payment into a loan amount
At 6.5% APR, each $100 of monthly payment supports about $4,217 over 48 months and $5,111 over 60 months. Add your down payment to get the price.
4. With a 10% budget
| Take-home pay | Total car budget | Loan payment | Loan, 48 months | Loan, 60 months |
|---|---|---|---|---|
| $4,000 | $400 | $100 | $4,217 | $5,111 |
| $5,000 | $500 | $200 | $8,433 | $10,222 |
| $6,000 | $600 | $300 | $12,650 | $15,333 |
| $8,000 | $800 | $500 | $21,084 | $25,554 |
5. With a 15% budget
| Take-home pay | Total car budget | Loan payment | Loan, 48 months | Loan, 60 months |
|---|---|---|---|---|
| $4,000 | $600 | $300 | $12,650 | $15,333 |
| $5,000 | $750 | $450 | $18,975 | $22,999 |
| $6,000 | $900 | $600 | $25,300 | $30,665 |
| $8,000 | $1,200 | $900 | $37,951 | $45,998 |
6. What the tables show
- At $3,000 of take-home pay, a 10% budget is $300, so insurance and running costs use all of it and no loan payment fits.
- Moving from 10% to 15% roughly doubles the loan amount at $5,000 take-home, from $8,433 to $18,975 over 48 months.
- Prices exclude sales tax and fees, so keep some of your budget in reserve.
7. Frequently asked questions
How much car can I afford on $5,000 a month?expand_more
Under the 10% rule your total car budget is $500. After $300 of insurance and running costs, a $200 payment supports about $8,433 of loan over 48 months at 6.5%, plus your down payment.
Is 10% or 15% of income the right car budget?expand_more
10% is the strict 20/4/10 rule. 15% is a looser guideline. Either way the percentage should cover insurance, fuel and maintenance too.
Should I use gross or take-home income?expand_more
Take-home pay is stricter and closer to what you can actually spend. Some versions of the rule use gross income.
Why does my budget show no loan payment?expand_more
If insurance and running costs equal or exceed your total car budget, nothing is left for a loan payment.