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Planning to buy a car? Avoid debt trap

By Bindisha Sarang
January 06, 2020 10:41 IST
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To make the most of your vehicle, use the age-old 20/4/10 personal finance rule, suggests Bindisha Sarang.

IMAGE: The Tata Nexon EV electric car. Kindly note the image has been published only for representational purposes. Photograph: Rajesh Karkera/Rediff.com
 
  • 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% to 35% of your take-home salary should go towards servicing all your debts.

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Bindisha Sarang
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