Buying a car can be exciting, but it can also lead to financial stress if you’re not careful. That’s where the 20/4/10 rule comes in. This simple rule helps you buy a car without spending too much money or falling into debt. Here’s what the 20/4/10 rule says:
When you buy a car, pay at least 20% of the car’s price upfront. For example, if the car costs Rs 15 lakh, on-road, you should pay Rs 3 lakh as a down payment. This reduces the amount you need to borrow and keeps your monthly payments low.
The loan you take to pay for the car should not last more than 4 years. A shorter loan means you pay less interest and own the car faster. It reduces the overall interest on the loan, saving you more money.
Your total monthly car expenses (loan payment, insurance, gas, and maintenance) should not exceed 10% of your monthly income. For instance, if you earn Rs 40,000 a month, your car’s expenses should stay under Rs 4000.
It helps you avoid overspending on a car, which can strain your budget. Many people make the mistake of buying expensive cars with long loans, leading to high monthly payments and debt.
The 20/4/10 rule keeps your finances in check and ensures you can afford your car comfortably. So, before you buy your next car, remember the 20/4/10 rule. It’s considered a smart way to drive your dream car.
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