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Smart Car Shopping: How to Use the 20/4/10 Rule for Purchasing a Vehicle
By Product Expert | Posted in FAQ, FAQs, Financing, Tips and Info on Friday, January 3rd, 2025 at 1:52 am
What Is the 20/4/10 Rule for Buying a Car?
Buying a car can feel exciting but also overwhelming, especially when you’re trying to stick to a budget. That’s where the 20/4/10 rule for buying a car comes in handy. These simple guidelines help you determine what you can afford, making the car-buying process stress-free. Whether buying your first car or upgrading to something new, the 20/4/10 rule ensures you’re financially prepared. At Von Schledorn Auto Group in Milwaukee, WI, we’re here to help you find the perfect vehicle, new or pre-owned. Keep reading to learn how this rule works and how it can guide you in making a car-buying decision!
Is It Better to Sell a Car or Trade It In?Â
Breaking Down the 20/4/10 Rule
The 20/4/10 rule is a straightforward formula to help car buyers budget wisely. Here’s how it works:
Put Down 20%
Pay at least 20% of the car’s purchase price upfront. This could come from cash savings, a trade-in vehicle, or both. Starting with a solid down payment reduces the amount you need to finance, which helps you avoid being “upside-down” on your loan.
Choose a 4-Year Loan
Limit your car loan to a maximum of four years (48 months). Shorter loans often come with lower interest rates, saving you money in the long run. This keeps your monthly payments manageable while preventing long-term debt.
Keep Costs Under 10% of Your Income
Ensure your monthly car expenses, including loan payments, insurance, gas, and maintenance, are no more than 10% of your net income. This step ensures your car fits comfortably into your budget, leaving room for other financial priorities.
Why the 20/4/10 Rule Works?
The 20/4/10 rule works because it focuses on affordability and long-term financial stability. By following these guidelines:
- You avoid overextending your budget.
- Your car payments stay manageable.
- You account for additional costs like insurance and maintenance.
It’s more than just a rule; it’s a roadmap for financial confidence. It also empowers you to understand your buying power, which is defined as what you can realistically afford without stretching yourself thin.
Get a New/Pre-Owned Vehicle in Milwaukee, WI
Using the 20/4/10 rule for buying a car simplifies your decision-making process, ensuring a smoother experience. At the Von Schledorn Auto Group in Milwaukee, WI, we’re here to help you every step of the way. Contact us today to learn more about your buying power or test drive of your favorite vehicle.
