Follow the 20/4/10 Rule for the Smartest Auto Loan Options



 
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You want to get out of that old car and into a new truck, SUV, or sporty sedan. But, you want to make financially smart decisions for you and for your budget.

Can you have both?

If you follow the 20/4/10 rule (guideline) it's easy to figure out how much car you can afford, and what you can comfortably pay per month to stay on budget and not stress over your loan.

Here's what the guideline recommends for responsible car buying:

 
  • 20% : suggested downpayment on the vehicle you want; for a $17,500 car or truck, that would be a downpayment or trade-in equal to $3,500--but if you can put down more, it's always a good idea to put down more

  • 4 years : suggested maximum auto loan term to maximize value and minimize interest paid; the longer your term, the more interest that you pay--and that 3-7% interest on a $14,000 loan can add up quickly

  • 10% : suggested maximum percentage of monthly car/insurance payments out of total monthly salary/income; so, if you make between $2,000-$4,000 per month, you should ideally try to stay within $200-$400 of car payment/insurance payment combined

Confused? Check out our responsible-payments page to learn more:

 

How Much Should I Pay for a Car?

 

It can be difficult to find a vehicle that checks all of your boxes, and also fits perfectly into the 20/4/10 rule.

The good news is that if you can even hit one or two of the three recommended guidelines, you should be in pretty good shape to stay on budget.

And we can help you do that; if you don't have the cash right now for that hefty 20% downpayment on a car, or a vehicle to trade in that's roughly equivalent to the value, our all-credit auto financing near St. Louis can help you get your best offered rates on a 4-year car loan.

Budget smarter, buy smarter, with AutoCenters.

 

 

 

Categories: Finance