Lincoln Financing 101: the 20/4/10 Rule of Car Buying (2024)

Lincoln Financing 101: the 20/4/10 Rule of Car Buying (1)

If you're confused about the whole Lincoln financing process, the 20/4/10 formula can help you get a handle on what to expect. It can be difficult to know exactly what to plan for and how much to save up, but this quick guide can help you figure that out. Let's take a look at what the 20/4/10 rule actually is, and how you can go about applying it to your car buying process.

What Is The 20/4/10 Rule?

First and foremost, the 20/4/10 rule is not a law. It's more like general guidelines and a way to plan for vehicle expenses. Basically, the rule goes that you provide a down payment of 20% of the balance, sign a loan for a four-year period, and pay no more than 10% of your monthly income on car expenses.

These expenses include any money you put towards your new vehicle, including gas, insurance, and loan payments.

How Can I Apply The 20/4/10 Rule?

When perusing our selection of available vehicles, take a moment to consider each one's asking price. Could you realistically save up for a 20% down payment, and if so, is 10% of your income enough to cover the monthly costs?

If your loan period is four years, and only 10% of your monthly income can be spent on your vehicle, could you pay off the balance in time? Be sure to remember that while your loan payments will stay consistent, fuel and insurance costs may shift over the course of your loan period.

Now that you know all about budgeting for your next vehicle, why not stop by Woodhouse Lincoln to check out our selection of vehicles? Figure out which vehicle you want to budget for, then make your way down to test drive it in person today.

Lincoln Financing 101: the 20/4/10 Rule of Car Buying (2024)

FAQs

Lincoln Financing 101: the 20/4/10 Rule of Car Buying? ›

20% down — be able to pay 20% or more of the total purchase price up front. 4-year loan — be able to pay off the balance in 48 months or fewer. 10% of your income — your total monthly auto costs (including insurance, gas, maintenance, and car payments) should be 10% or less of your monthly income.

What is the 20/4-10 rule for car buying? ›

It suggests that you should do the following: Make a down payment of at least 20% of the car's purchase price. Finance the car for no longer than four years. Ensure that your total car expenses, including loan payments, insurance and fuel, do not exceed 10% of your gross annual income.

What is the 1 10th rule for buying a car? ›

Remembering that total car costs include insurance, maintenance and gas (not to mention parking and traffic tickets!), if you can manage to spend only one-tenth of your gross income on a new-to-you car, the financial benefits are plentiful.

What is the 20 3 8 rule for car loans? ›

It consists of three parts: a down payment of at least 20% of the car's price, limiting the loan term to three years, and ensuring that your car payment does not exceed 8% of your monthly income. This Rule is not just about numbers; it's a strategic approach to avoid financial strain due to an auto loan.

What is the 50 30 20 rule for car payments? ›

Balance Your Budget

50% for needs like housing, food, and transportation. In this case, the monthly car payment and other related auto expenses fit into this category. 30% for wants like entertainment, travel, and other nonessential items. 20% for savings, paying off credit cards, and meeting long-term financial goals.

How much should I spend on a car if I make $100,000? ›

Starting with the 1/10th guideline, created and pushed by Financial Samurai, this guideline states: buy a car in cash that costs less than 1/10th your gross annual pay. If you make $50,000 you should buy a car in cash worth $5000. If you make $100,000, the car you buy should be worth no more than $10,000.

What is a good APR for a car? ›

What is a good APR for a car loan with my credit score and desired vehicle? If you have excellent credit (750 or higher), the average auto loan rates are 5.07% for a new car and 5.32% for a used car. If you have good credit (700-749), the average auto loan rates are 6.02% for a new car and 6.27% for a used car.

What is the 80 20 10 rule for cars? ›

20% down — be able to pay 20% or more of the total purchase price up front. 4-year loan — be able to pay off the balance in 48 months or fewer. 10% of your income — your total monthly auto costs (including insurance, gas, maintenance, and car payments) should be 10% or less of your monthly income.

What's a good down payment on a 30k car? ›

Consider putting at least $6,000 down on a $30,000 car if you're buying it new or at least $3,000 if you're buying it used. This follows the guidelines of a 20% down payment for a new car or a 10% down payment for a used car.

How much should I spend on a car if I make $200,000? ›

Financial experts answer this question by using a simple rule of thumb: Car buyers should spend no more than 10% of their take-home pay on a car loan payment and no more than 20% for total car expenses, which also includes things like gas, insurance, repairs and maintenance.

How to pay off a 7 year car loan in 3 years? ›

Below are the methods you should consider to pay off your car loan faster:
  1. Refinance your car loan.
  2. Split Your Bill Into Two Biweekly Payments.
  3. Make a large down payment.
  4. Round up your car payments.
  5. Review additional car expenses.
Oct 4, 2023

What is the 30 60 90 rule for cars? ›

Bryan Auto Repair

For most cars, the recommended maintenance occurs for every 30,000 miles that a car is drive. 30,000, 60,000, and 90,000 mile services are important to ensure that your car continues to run and operate smoothly.

How much should I spend on a car if I make $40,000 a year? ›

So, how much car can you afford? As a rule of thumb, never spend more than 35% of your gross annual income on a car. The following calculator allows you to see enter variables, including down payment, interest rate, and loan term to compare a monthly payment to what's affordable.

How much should my car payment be if I make $60000 a year? ›

If your take-home pay is $60,000 per year, you should pay no more than $750 per month for a car, which totals 15% of your monthly take-home pay.

How much should I spend on a car if I make $60,000? ›

How much should I spend on a car if I make $60,000? If your gross salary is $60,000, your take-home monthly pay is probably around $3,750, assuming about 25% of your pay goes toward taxes and other expenses. Based on the 10-15% calculation, you should spend no more than $562.50 on a monthly car payment.

Is a 500 a month car payment bad? ›

How much should you spend on a car? Whether you're taking out an auto loan or a personal loan to pay for your car, it's a good idea to limit your car payments to between 10% and 15% of your take-home pay. If you take home $4,000 per month, you'd want your car payment to be no more than $400 to $600.

Does the 20/4-10 rule still apply? ›

Remember, this “rule” is actually a rule of thumb — it relies heavily on your own, unique financial situation. Still, when determining the amount of money for your down payment, the length of your loan (and interest rate), and how much you can afford to spend on monthly payments, it does serve as a great guide.

What is the 30 20 10 rule for cars? ›

The 20/4/10 rule is a general guide to car buying. It advises that you put 20% down on a 4-year auto loan and spend 10% of your salary on transportation costs. So, if you're interested in a $20,000 car, you would put 20% down, or $4,000.

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