GMC Finance Tips: Understanding the 20/4/10 Rule

It’s important not to overextend yourself financially when buying a vehicle. You can avoid doing so by setting clear rules for yourself when you begin car shopping. For the GMC finance process, the 20/4/10 rule is a great one to follow. Mauer GMC goes over what this entails and how it helps ensure you make a smart financial decision.

20-Percent Down Payment

Because financing involves taking out a loan to pay for your car, your goal should be to borrow as little money as possible. A bigger down payment helps to minimize how much you need to borrow, and thus, lowers how much you’ll pay over time. You want to aim for a down payment that’s at least 20 percent of the purchase price. If you don’t have that much on hand, consider trading in an older vehicle to contribute toward your down payment.

4-Year Loan Term

The next thing to think about is how long you want your loan term to be. Loan terms can be as short as two years or as long as eight. If you go with a short term, your monthly payments will be higher; a long term will reduce those, but you will end up paying more in interest. That’s why you want to aim for a happy middle ground – opting for a term of four years could be your best bet.

10-Percent Monthly Payment

Finally, you have to figure out how much you can spend every month comfortably. The rule of thumb is to not exceed 10 percent of your monthly income for your auto expenses. And don’t just factor in the car payment – this should also include fuel, insurance, and other related expenses.

Start the GMC Financing Process in Inver Grove Heights, MN

Now that you know how to create a good financing plan, it’s time to get things started. Mauer GMC in Inver Grove Heights, MN, makes it easy. Just fill out our online application to get pre-approved.