Loan needs to buy a car, luxury car will easily come home by adopting a smart formula of 20/4/10

In today’s run -of -the -mill life, the car has become not just a luxury, but a need. Whether it is going to go to office, leave school or walk with family, everyone’s mind definitely comes to buy a car one day.

But sometimes this dream is overwhelmed due to wrong financial planning or haste. In such a situation, there is a very effective strategy, 20/4/10 rules, which can help in buying a car without damaging your financial situation.

What is 20/4/10 Rules?

20/4/10 Rules are a simple but effective car financeing guideline. This rule is based on three major columns- down payment, loan period and monthly expenses. Through this rule, you can decide which car will fit in your budget and lifestyle.

20 percent of car price

Whenever you go to buy a car, give at least 20 percent of its price as a down payment. This will reduce your total loan amount and you will be able to save a lot on interest. Also, the burden of repaying the loan will also lighten it.

Loan duration, maximum 4 years

According to this rule, the duration of the car loan should not be more than four years. This will end your debt quickly and you will not pay interest for a long period. Credit score is also better by repaying the loan in a short time.

Maximum 10 percent of the total income

Apart from car EMI, there are insurance, maintenance and other expenses. Together, it should not be more than 10 percent of your monthly salary. With this, you will be able to save enough funds for other important expenses and will not come under financial pressure.

Why is this rule important?

According to a advice by Tata AIG Insurance, the car you are buying should not exceed 50 percent of your annual income. For example, if your annual income is Rs 10 lakh, then you should not buy a car worth more than 5 lakh rupees. The 20/4/10 rule expands this thinking and provides you with a strong financial guideline.

Car and relaxed too

By adopting this rule, not only you take a smart financial decision, but you also get mental peace. You can buy a car of your choice without being overburden. You are able to repay the loan on time, and you can easily manage other expenses coming with the car.

Often people take a car without assessing EMI and then they have to compromise for the rest of the expenses. The 20/4/10 rule saves from this mistake and makes your shopping systematic and durable.

If you are also going to buy a car for the first time or thinking of taking a new car, then this rule can be a reliable guide for you. 20 percent down payment, 4 -year loan, and 10 percent monthly expenditure limit, by adopting these three things, you can fit your car in your budget.

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