The traditional “20/4/10 rule” of car buying states that you should make a 20% down payment, have a loan no longer than four years, and a total monthly car budget that does not exceed 10% of your take-home pay. But the reality is only 6% of new car shoppers actually followed that advice in March, according to Edmunds sales data. The average loan term for a new or used car has steadily increased over the last decade and is now about 70 months.
The longer loan terms reflect not only a trend of people seeking a way to offset paying for costlier trucks and SUVs but also inflated prices due to a nationwide vehicle shortage. At today’s car prices, the old rule of thumb is not only being ignored but is also unattainable for most Americans.
