12 Sep 2022
Buying a car can mean different things for different people.
For some, it is aspirational, while for some others, it is about convenience. It could be a status symbol for someone, and simply practicality for another person.
One thing, though, that may be common is the cost – buying a car is a major expense for most people. This means, that one also needs to plan the finances needed for it.
Because of the aspirational aspect and the status symbol associated with owning a car, a lot of people often tend to go overboard when planning to purchase a car.
How can you avoid that?
By using the 20-4-10 guideline!
What’s the 20?
This guideline assumes that one is taking a loan to buy their car and says that you should make a down payment of at least 20% of the total value of the car.
So if your dream car is for ₹800,000, your down payment should ideally be about ₹160,000.
What’s the 4?
The tenure of your car loan should be a maximum of four years.
Keeping the tenure of the car loan limited can help in capping the total interest payments you would make.
What’s the 10?
Not more than 10% of your monthly income should be used for transportation costs – this includes your monthly loan repayments, the cost of fuel, insurance and maintenance costs.
What one must keep in mind, though, is that this rule may not be tailor-made for everyone who is looking to purchase a car. It should be used as a guideline, and may be helpful for you to keep your expenses in check.
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