20/4/10 Car Buying Rule
Rule Verification
Down Payment (20%)
💳₹0
Monthly EMI (4 yrs)
📅₹0
Budget Limit (10%)
🎯₹0
Car Price
🚗₹0
EMI vs Monthly Budget
Down Payment vs Loan Amount
About 20/4/10 Car Buying Rule
20/4/10 Car Buying Rule — a simple guideline to ensure your car purchase is financially sustainable. The rule suggests a 20% down payment, a 4-year loan term, and spending no more than 10% of your monthly income on total transportation costs.
How to use the 20/4/10 Rule Calculator
- Enter the car's on-road price.
- Enter your monthly after-tax income.
- Provide the annual interest rate for the car loan.
- Review the "Budget Status" to see if the purchase fits the 10% income rule.
Breaking Down the Rule
- 20% Down Payment — helps you start with equity in the car and prevents you from being "underwater" on the loan.
- 4-Year Loan Term — keeps interest costs low and ensures you pay off the car before it depreciates too much.
- 10% Monthly Income — covers your car loan EMI, insurance, fuel, and maintenance, ensuring it doesn't strain your budget.
Why Use This Rule?
- Prevents over-leveraging on a depreciating asset.
- Minimizes total interest paid over the life of the loan.
- Ensures you have enough money left for other financial goals like savings and retirement.
Tips for Success
- If the 10% rule is too strict, try to stay under 15% as an absolute maximum.
- Consider maintenance and insurance costs, as they can be significant parts of the 10% limit.
- Save up for a larger down payment if you can't meet the 10% rule with 20% down.
FAQs
Can I use a 5-year loan instead?
While 5-year loans are common, they increase total interest. Stick to 4 years if possible to stay financially healthy.
Does the 10% include fuel and insurance?
Yes, the ideal 10% target should include all car-related expenses, including EMI, insurance, fuel, and maintenance.
Use this calculator as a guide to making a smart financial choice for your next car purchase.