Understanding the 20/4/10 Rule for Car Financing

Because purchasing a vehicle will have a big impact on your finances for years to come, it really pays to go in with a plan. To be smart with your money, it’s worth following the 20/4/10 rule for car financing.

20 – The Down Payment

The first thing to think about is how much money to put down for your car. The rule says this should be 20 percent – or as close as you can get to that number. While this may be somewhat high, it will be worth it when it lowers the amount of money you will need to borrow.

4 – The Loan Term

In order to get reasonable monthly payments, four years is a good number for the length of the loan. While you may want that number to be smaller so you can pay off the loan faster, this will result in higher payments. You also need to keep in mind that the longer the loan term, the more you will pay in interest.

10 – The Monthly Income

How much income do you make every month? Whatever it is, figure out what 10 percent of that is. This is how much you should be paying for all transportation costs. On top of the car payments, this includes insurance, gas, and any maintenance.

Get All Your Car Financing Questions Answered at Woodhouse Chevrolet

If you need help figuring out what you can afford with your car purchase, get in touch with Woodhouse Chevrolet in Missouri Valley. You can talk to one of our financing pros to get expert guidance. And if you are ready to start the financing process, you can fill out our online application to get pre-approved for a loan.