Buying a car is a big dream for many, especially the middle class. But with the right financial planning, that dream can become a reality without putting too much pressure on your income. A simple 20/10/4 rule can help you plan your car purchase smartly.
The rule is simple. When buying a car, try to pay at least 20% of the car’s on-road price as a down payment. This reduces your loan amount and interest burden.
Your monthly EMI should not exceed 10% of your monthly income, which ensures your other expenses are not affected. Finally, keep your loan tenure limited to 4 years so that you save on interest and clear the loan faster.
Following this formula makes your car purchase more affordable and financially safe. First, find out the total cost of the car. Calculate 20% of it to know the ideal down payment. Then, check if the EMI fits comfortably within 10% of your monthly income. Finally, choose a loan tenure of 4 years or less.
Of course, everyone’s financial situation is different, so these numbers may vary slightly. But the 20/10/4 rule is a smart starting point to avoid over-borrowing and long-term debt.
With this simple strategy, your dream car can come home without putting too much strain on your wallet.
