What You know that a car is a depreciating asset. If you are not using the car commercially, its value decreases over time. As soon as a new car leaves the showroom and hits the road, its value starts depreciating. In such a situation, the car loan should be of minimum duration. Different banks are making special offers to their customers on car loans. In such a situation, before taking a loan, definitely compare these offers and take the loan from where you find it most economical. If you are going to take a car loan, then you must follow the 20/4/10 rule. Let us know what this rule is and what are its benefits.
What is the 20/4/10 rule?
The 20/4/10 rule comes in handy while taking a car loan. This rule tells the customer for how much amount and for what period a car loan should be taken. This rule gives the answer according to the financial condition of the customer. According to this rule, you can afford a car if you meet these three requirements:
- According to the 20/4/10 rule, when buying a car, you should pay at least 20 percent or more as down payment. If you can do this, the first requirement of the rule is satisfied.
- The 20/4/10 rule states that customers should take a car loan for a tenure of 4 years or less. That means the loan tenure should be maximum 4 years. In this way, you should buy only that car whose loan you can repay within 4 years.
- The 20/4/10 rule states that your total transportation cost (including car EMI) should be less than 10 percent of your monthly salary. Apart from EMI, transportation cost also includes fuel and maintenance expenses. Now you should buy only that car in which you can fulfill all these three needs.
make more down payment
If you are going to buy a car, then definitely keep some things in mind, like make as much down payment as possible. Instead of buying an upgraded model, you can buy the base model of the car, as it will be cheaper for you. Consider last year’s leftover new car inventory, it will cost you cheaper. Keep your current car longer and save for a new car. Instead of buying a new car, you can also buy a used car.
