Understanding the 20/4/10 rule for Car Financing

If you’re buying a new vehicle, you want to make sure that it’s one that you can afford. One rule car financing is the “20/4/10” rule. Here’s what it means and how it can help you find an affordable vehicle here at Kearny Mesa Chevrolet.

The 20/4/10 Rule for Car Financing

The 20/4/10 rule is designed to help you find a car that won’t stretch your financial limits. A vehicle is often a necessity but purchasing one that wrecks your budget is never a good plan.

The 20 stands for a 20% down payment. This is the first payment you make for the vehicle and then you finance the rest of the cost, 80%, with a loan. If you cannot afford to make a 20% down payment, the car might already be out of your price range.

The number four represents a four-year loan term. This is how long you have to pay off your car. Longer terms, like five or six years, are often available.

Taking a longer term results in lower monthly payments, but you’ll end up paying more in interest. If a four-year loan term results in a monthly payment that isn’t feasible, that car might not be for you.

Finally, the 10 stands for 10%. Your monthly payment should not account for more than 10% of your income. You have other expenses, so your car shouldn’t be an overwhelming one. You also have to worry about insurance costs, maintenance, and fuel expenses as well, so you don’t want a car with an incredibly high monthly payment.

Finance a New Car Today!

If you’re ready to buy a new Chevy car, truck, or SUV, visit our new car dealership near San Diego. We can answer any questions that you have about car loans and budgeting for a vehicle!