Planning to buy a car? Use the age-old 20/4/10 rule to avoid debt trap

Topics car loan | car loans

  • To make the most of your vehicle, use the age-old 20/4/10 personal finance rule. 
  • 20 stands for the minimum percentage you should pay as down payment. This will decrease the overall cost of your loan.  
  • 4 means you should finance a car for no more than four years. If you opt for a longer tenor, you will end up paying more in interest cost. 
  • The sooner you close the loan, the earlier you will become the owner of the car. Until then it will be hypothecated to the lender. 
  • 10 stands for the maximum percentage of your monthly income you should shell out for your car EMI.  
  • Ideally not more than 30-35 per cent of your take-home salary should go towards servicing all your debts.

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