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

Don't over-leverage when buying a car

Bindisha Sarang
Last Updated at December 22, 2019 21:55 IST

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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