Frequently asked questions
What is the 20/5/10 rule for buying a car?+
The 20/5/10 rule says to put at least 20% down, finance for no more than 5 years (60 months), and keep your total monthly car costs — loan payment plus insurance — under 10% of your gross monthly income. It's the updated version of the older 20/4/10 rule, adjusted for today's market where 60-month loans are standard.
How much car can I afford on a $50,000 salary?+
On a $50,000 salary, the 10% rule gives you about $417/month for total car costs. After $150 in insurance, that leaves roughly $267 for a loan payment. On a 60-month loan at 7%, that supports a loan amount of about $13,500 — meaning with $3,000 down, you could afford a car around $16,500. With more down payment you can afford more car.
Should I put 20% down on a car?+
20% down is the recommendation because cars depreciate 15-25% in the first year. Without enough down payment, you quickly owe more than the car is worth — called being underwater. If you need to sell or the car is totaled, insurance may not cover the full loan balance. A 20% down payment protects against this and lowers your monthly payment and total interest paid.
Is a 72-month car loan a bad idea?+
A 72-month loan lowers your monthly payment but costs significantly more in total interest and keeps you underwater longer. A $30,000 car at 7% over 72 months costs about $7,200 in interest versus $5,600 over 60 months. You also risk the car needing expensive repairs while you're still making payments. In general, if you need 72 months to afford the payment, the car is too expensive for your budget.
How does a trade-in affect how much car I can afford?+
A trade-in works like extra down payment — it reduces the amount you need to finance. If your trade-in is worth $8,000 and you put $2,000 cash down, you effectively have $10,000 toward the purchase. This reduces your loan amount, lowers your monthly payment, and reduces total interest paid. Get your trade-in value appraised at Carvana, CarMax, or CarGurus before visiting a dealer so you know what it's worth independently.
What credit score do I need for a good auto loan rate?+
Credit score has a major impact on auto loan rates. Generally: 750+ gets the best rates (5-7%); 700-749 is good (7-9%); 650-699 is fair (10-14%); below 650 means subprime rates (15%+). Improving your credit score before applying for a car loan can save thousands in interest. Check your credit score before shopping so you know what rate range to expect.