Average used car requires $120K in income to afford, according to the 20-4-10 rule — advisors call it a 'wealth killer'

There's an aged trial for whether you tin really spend a car. Put 20% down, concern for nary much than 4 years and support everything the car costs you — payment, insurance, fuel, attraction — nether 10% of your gross income. That's the 20-4-10 rule, and fiscal planners person abided by it for decades (1).

The occupation is passing that trial isn't truthful casual anymore. According to a caller CNBC analysis, you'd request to gain astir $120,000 a twelvemonth to spend an mean utilized car nether this regularisation (2). For context, the median U.S. household earned $83,730 successful 2024, according to the U.S. Census Bureau (3). In different words, an affordability regularisation that was meant for mean car buyers present assumes an income astir radical don't earn.

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Still, fiscal planners aren't abandoning it. If anything, they accidental it matters much present than ever, due to the fact that the hazard it guards against has lone grown.

"Cars person softly go 1 of the biggest wealthiness killers successful the middle-class budget," Mark Stancato, a certified fiscal planner astatine VIP Wealth Advisors, told CNBC.

Why an mean utilized car present demands a six-figure income

It comes down to however overmuch you walk connected the car. According to Cox Automotive, the mean utilized conveyance listed for $26,342 successful April (4), up 3% from a twelvemonth earlier.

Now tally that utilized car done the 20-4-10 rule, the mode CNBC did (2). According to the outlet, a 20% down outgo comes to $5,268, leaving $21,074 to concern implicit 4 years astatine a 6.98% involvement rate. That gets you to astir $505 a month.

Then adhd the remainder of what the car costs to own: astir $190 (5) a period for insurance, $201 for substance (6), and different $100 oregon truthful (7) for attraction and repairs. That puts the full astatine astir $996 a month, oregon adjacent to $12,000 a year, connected a utilized car.

Under the 20-4-10 rule, that means a purchaser would request gross household income of astir $120,000. And remember, this is the idiosyncratic who did everything by the publication — bought used, enactment wealth down and kept the indebtedness short.

Read More: About 1 successful 5 Americans implicit 50 has zero status savings — here's the catch-up program you tin really use

The four-year regularisation astir cipher follows

Once you tally the numbers, it makes consciousness wherefore truthful galore buyers person moved distant from the accepted buying regularisation for caller and utilized cars.