Understanding the 20/4/10 Rule for Car Financing

When you’re buying a new car, you don’t want it to end up causing you a lot of financial stress. At Zeigler Nissan of Gurnee, we talk to plenty of drivers about how to budget for a vehicle and find a Nissan financing deal that works for them. One rule we commonly refer to is the “20/4/10” rule for car financing, a simple guideline that could make it easier to find a Nissan model you can afford.

The 20/4/10 Rule Explained

The 20/4/10 rule has three parts. The “20” refers to the down payment, that first payment you make on the vehicle. This rule says that if a car is affordable, you should be able to put down 20 percent and finance the rest. Remember, putting down less money means a bigger loan to pay off later.

The “four” concerns the loan term, or how long you have to pay off your new Nissan car. You should only be buying a car that you can pay off in four years. The loan term helps determine your monthly payment, so longer ones mean lower payments, but more interest paid out in total.

Sticking to a car that you can pay off in four years helps you avoid a lot of interest. If you can’t swing a monthly payment on a car unless you extend the loan term to five or six years, it might not be the best car for your budget.

Finally, we have the “10.” This signifies that you shouldn’t be spending more than 10 percent of your monthly income on a car payment. Remember that there are other ownership costs to budget for, like gas and insurance, so overspending on a monthly payment can cause financial stress.

Find a Budget-Friendly Nissan Car!

Visit our Nissan dealership serving Lindenhurst, IL and we’ll help you find a new car that fits into your budget. We look forward to seeing you!

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