Looking to buy a car? Find your ideal car loan with the 20/10/4 rule Business
Car Loan: Buying a home is a big financial decision, and for many people, the next important decision buying a car, Many people choose to take a loan for this purchase. Here is a simple guideline known as 20/10/4 rule To help you determine the right car loan amount,
How much loan can you get?
Banks and other financial institutions typically offer car loans to cover around 80% of the car’s on-road price. In some cases, lenders may approve a loan for the entire 100% price of the car. The main factor determining the loan amount is the loan to value (LTV) ratio set by the lender. This ratio represents the percentage of the total cost of the car that the lender agrees to finance. The borrower is responsible for covering the remaining portion of the car’s cost with his or her own funds. While many lenders offer an LTV ratio of up to 80%, some may offer a loan to cover the entire 100% cost of the car.
EMI payment
When taking a car loan, it is important to choose a monthly payment (EMI) that suits your budget. Don’t choose lower EMIs and longer loan tenure just because they are available. Choose these options only if they suit your financial situation. Going for lower EMIs and longer loans may mean paying unnecessarily high interest. On the other hand, avoid high EMIs if they will impact your ability to meet other financial goals every month. No matter how much you borrow, make sure your EMIs are easy to manage and will not put a strain on your finances.
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For example, if you are buying a car worth Rs 15 lakh, do you have Rs 7 lakh saved for the down payment? If you choose a loan for the remaining Rs 8 lakh, which EMI amount will be comfortable for you? A good credit score (₹750 and above) can help you get a higher loan amount and better interest rates, an ET report said. People with credit scores above 750 usually get loans for 80 to 90 percent of the total cost of the car. It is recommended to put aside as much money as possible for the down payment to reduce the size of your EMI.
So, even if you are eligible for a higher LTV ratio, consider a lower LTV ratio instead. choose one less ltv ratio Can simplify your EMI payments and reduce the total interest cost of buying a car. It is recommended that car loan seekers should aim for a lower LTV ratio to find a balance that does not impact their liquidity or financial reserves earmarked for important life goals.
Ideally, the total EMI of all your loans should not exceed 40% of your take home salary. Depending on your current situation, you can decide how much of this 40% allocation your car EMI can take.
Furthermore, there are many factors to consider before selecting a suitable car loan.
What is the 20/10/4 rule for car loans?
The 20/10/4 rule is a guideline that is often used when obtaining a car loan:
How much loan can you get?
Banks and other financial institutions typically offer car loans to cover around 80% of the car’s on-road price. In some cases, lenders may approve a loan for the entire 100% price of the car. The main factor determining the loan amount is the loan to value (LTV) ratio set by the lender. This ratio represents the percentage of the total cost of the car that the lender agrees to finance. The borrower is responsible for covering the remaining portion of the car’s cost with his or her own funds. While many lenders offer an LTV ratio of up to 80%, some may offer a loan to cover the entire 100% cost of the car.
EMI payment
When taking a car loan, it is important to choose a monthly payment (EMI) that suits your budget. Don’t choose lower EMIs and longer loan tenure just because they are available. Choose these options only if they suit your financial situation. Going for lower EMIs and longer loans may mean paying unnecessarily high interest. On the other hand, avoid high EMIs if they will impact your ability to meet other financial goals every month. No matter how much you borrow, make sure your EMIs are easy to manage and will not put a strain on your finances.
Read this also Beware of credit card traps! 6 things you should know to avoid overpaying
For example, if you are buying a car worth Rs 15 lakh, do you have Rs 7 lakh saved for the down payment? If you choose a loan for the remaining Rs 8 lakh, which EMI amount will be comfortable for you? A good credit score (₹750 and above) can help you get a higher loan amount and better interest rates, an ET report said. People with credit scores above 750 usually get loans for 80 to 90 percent of the total cost of the car. It is recommended to put aside as much money as possible for the down payment to reduce the size of your EMI.
So, even if you are eligible for a higher LTV ratio, consider a lower LTV ratio instead. choose one less ltv ratio Can simplify your EMI payments and reduce the total interest cost of buying a car. It is recommended that car loan seekers should aim for a lower LTV ratio to find a balance that does not impact their liquidity or financial reserves earmarked for important life goals.
Ideally, the total EMI of all your loans should not exceed 40% of your take home salary. Depending on your current situation, you can decide how much of this 40% allocation your car EMI can take.
Furthermore, there are many factors to consider before selecting a suitable car loan.
What is the 20/10/4 rule for car loans?
The 20/10/4 rule is a guideline that is often used when obtaining a car loan:
- This is a basic rule for buying a car by taking a loan.
- Allocate 20% of the car’s on-road price as down payment when booking a vehicle.
- Make sure that the equated monthly installment (EMI) does not exceed 10% of your monthly income.
- Limit the loan tenure to a maximum of four years.
- Remember, this rule may differ for each individual depending on their monthly income and other financial obligations.
