While there’s nothing more exciting than purchasing a new Mazda car here at Goodwin Mazda, it’s important to approach the car-buying process with a clear understanding of your budget. The Mazda financial team at Goodwin Mazda always recommends following the 20/4/10 rule, which is a guideline to help you make a responsible financial decision on your next vehicle. Here’s an overview.
What Is the 20/4/10 Rule?
The 20/4/10 rule is a rule of thumb for car financing that suggests the following:
- 20-Percent Down Payment: The rule recommends making a down payment of at least 20 percent of the car’s purchase price. Doing so reduces the amount that you need to finance, helping to lower your interest rate and monthly payments.
- 4-Year Loan Term: Ideally, keep your loan term to around four years or less. While shorter loans mean higher monthly payments, you’ll pay less interest overall. Longer loans may seem appealing with their lower monthly payments, but in the end, you’ll pay much more in interest. A term of four years strikes a balance between the two extremes.
- 10 Percent of Income on Transportation: Limit your total transportation expenses to no more than 10 percent of your gross monthly income. This includes car insurance, car payment, gasoline, and maintenance.
Why Does the 20/4/10 Rule Work?
First, by making a large down payment and keeping your loan term short, buyers will minimize the total amount they need to finance and reduce the risk of negative equity. Sticking to the 10 percent guideline, meanwhile, helps to ensure that your car expenses do not overwhelm your budget.
Finance a MAZDA Car in Brunswick, ME
At Goodwin Mazda, our team of friendly Mazda finance representatives are ready to get you behind the wheel of your dream Mazda car. Visit us today to get matched with a Mazda finance plan that works for you!
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