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The 20/4/10 rule for budgeting is a great rule of thumb to apply when seeking car finance in Brisbane, particularly for first-time car buyers. This simple budget rule can help you make a responsible financial decision without letting your emotions compromise your financial health in the future.

Let’s take a look at how the 20/4/10 budget rule applies:

20% Deposit

The “20” refers to the 20% deposit you should try to put down upfront. By doing so, you can reduce the amount of money you need to finance, leaving only 80% of the purchase price to borrow.

Paying a 20% deposit helps lower monthly repayments and decreases the total interest that needs to be repaid over the life of the loan. Ultimately, this makes your loan much more affordable in the long run by reducing your monthly installments.

Four-Year Loan Term

The “4” refers to a loan term that ideally should not exceed four years or 48 months. Keeping the loan term short means you pay off the car faster, minimising the amount of interest owed and reducing the amount of time you will need to contribute to a depreciating asset.

Longer loan terms end up costing you more in the long run as the interest builds up. Even though longer terms have lower monthly payments, the total cost will be higher due to the accumulated interest over time.

10% of Monthly Income

Ideally, the total cost of the vehicle and the monthly repayments should not be more than 10% of your monthly gross income. This means that your total monthly vehicle expenses, including loan payments, insurance, fuel and maintenance, should not exceed 10%.

This will help ensure that your car expenses do not take up too much of your budget, leaving you with some breathing room to pay for other essential expenses and potentially dedicate some of your income to savings.

Limiting the amount of money you spend on your car every month can help your financial stability going forward.

Here at iCREDIT, we aim to help first-time car buyers secure good deals on Brisbane car finance. Have some questions? Contact us today!

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