If you're confused about the whole Lincoln financing process, the 20/4/10 formula can help you get a handle on what to expect. It can be difficult to know exactly what to plan for and how much to save up, but this quick guide can help you figure that out. Let's take a look at what the 20/4/10 rule actually is, and how you can go about applying it to your car buying process.
What Is The 20/4/10 Rule?
First and foremost, the 20/4/10 rule is not a law. It's more like general guidelines and a way to plan for vehicle expenses. Basically, the rule goes that you provide a down payment of 20% of the balance, sign a loan for a four-year period, and pay no more than 10% of your monthly income on car expenses.
These expenses include any money you put towards your new vehicle, including gas, insurance, and loan payments.
How Can I Apply The 20/4/10 Rule?
When perusing our selection of available vehicles, take a moment to consider each one's asking price. Could you realistically save up for a 20% down payment, and if so, is 10% of your income enough to cover the monthly costs?
If your loan period is four years, and only 10% of your monthly income can be spent on your vehicle, could you pay off the balance in time? Be sure to remember that while your loan payments will stay consistent, fuel and insurance costs may shift over the course of your loan period.
Now that you know all about budgeting for your next vehicle, why not stop by Woodhouse Lincoln to check out our selection of vehicles? Figure out which vehicle you want to budget for, then make your way down to test drive it in person today.
FAQs
20% down — be able to pay 20% or more of the total purchase price up front. 4-year loan — be able to pay off the balance in 48 months or fewer. 10% of your income — your total monthly auto costs (including insurance, gas, maintenance, and car payments) should be 10% or less of your monthly income.
What is the 20/4-10 rule for buying a car? ›
It suggests that you should do the following: Make a down payment of at least 20% of the car's purchase price. Finance the car for no longer than four years. Ensure that your total car expenses, including loan payments, insurance and fuel, do not exceed 10% of your gross annual income.
What is the 1 10th rule for buying a car? ›
Remembering that total car costs include insurance, maintenance and gas (not to mention parking and traffic tickets!), if you can manage to spend only one-tenth of your gross income on a new-to-you car, the financial benefits are plentiful.
What is the 50 30 20 rule for car payments? ›
Balance Your Budget
50% for needs like housing, food, and transportation. In this case, the monthly car payment and other related auto expenses fit into this category. 30% for wants like entertainment, travel, and other nonessential items. 20% for savings, paying off credit cards, and meeting long-term financial goals.
What is the 20 3 8 rule for car loans? ›
The 20/3/8 car buying rule says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments. As we go into depth to determine how realistic this rule is, you may consider whether it can actually help you budget for your next car.
How much should I spend on a car if I make $100,000? ›
Starting with the 1/10th guideline, created and pushed by Financial Samurai, this guideline states: buy a car in cash that costs less than 1/10th your gross annual pay. If you make $50,000 you should buy a car in cash worth $5000. If you make $100,000, the car you buy should be worth no more than $10,000.
What is a good APR for a car? ›
Car Loan APRs by Credit Score
Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used.
Is the 20 4 10 rule realistic? ›
Remember, this “rule” is actually a rule of thumb — it relies heavily on your own, unique financial situation. Still, when determining the amount of money for your down payment, the length of your loan (and interest rate), and how much you can afford to spend on monthly payments, it does serve as a great guide.
What's a good down payment on a 30k car? ›
Consider putting at least $6,000 down on a $30,000 car if you're buying it new or at least $3,000 if you're buying it used. This follows the guidelines of a 20% down payment for a new car or a 10% down payment for a used car.
How much should I spend on a car if I make $200,000? ›
How much car can I afford based on salary? According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%.
How much should I spend on a car if I make $60,000? If your gross salary is $60,000, your take-home monthly pay is probably around $3,750, assuming about 25% of your pay goes toward taxes and other expenses. Based on the 10-15% calculation, you should spend no more than $562.50 on a monthly car payment.
How much should I spend on a car if I make $40,000 a year? ›
The 35% rule states that the most that you should spend. on the price of a car. is not to exceed 35% of your gross income. That means if you make $40,000 a year, the cars price should not exceed $14,000. If you make $80,000, the cars price should be below $28,000.
Is a 500 a month car payment bad? ›
If you're looking for a few tips on managing a high car payment, you're not alone. The average monthly car payment is now a record $733, according to Edmunds. And even if your monthly auto loan payments are around $500 per month, that still may be uncomfortably high.
What is the money guy rule for buying a car? ›
The 20/3/8 rule stand for:
20% down. Finance no longer than 3 years. Total car payment is no more than 8% of gross income.
What is the 30 60 90 rule for cars? ›
Seek Out Auto Service
So if your car hits 30,000 miles, 60,000 miles, or 90,000 miles, you should bring it to an auto shop for the maintenance that it needs. It is better to take care of it when it needs to be taken care of rather than waiting and seeing what happens.
Does the 20 10 rule apply to all credit? ›
The 20/10 rule does not include your mortgage or rent. It only applies to your consumer debt, including payments to: There are cases where this rule may not work for everyone right away. It all depends on how indebted you are and whether that debt has had a negative impact on your credit score.
