20/4/10 Rule for Car Buying

Lol yeah I don't know how people could afford a car with 10% on monthly car + insurance + gas and maintenance... unless everyone here is making 100k after taxes..

That's for new.

For used I go with the 10% of gross income rule. For most people here that's anywhere from $5k to $30k+ on a used car.

I like used cars that were owned by people who care and maintained meticulously but those require some time to find.

I now have the 100% rule... pay it off 100% up front, DON VALLEY NORTH LEXUS was trying to charge me 6-7% interest on a used car in 2020, I think that's very unfair.

btwitsmatt wrote: ↑ Lol yeah I don't know how people could afford a car with 10% on monthly car + insurance + gas and maintenance... unless everyone here is making 100k after taxes..

After taxes is key. Because even let's say 250k gross is not a whole lot after taxes, obligations, investments etc.

m4gician wrote: ↑ That's for new.

For used I go with the 10% of gross income rule. For most people here that's anywhere from $5k to $30k+ on a used car.

I like used cars that were owned by people who care and maintained meticulously but those require some time to find.

Looking under $30k for a used car.

But my little voice says.. Life is too short. Enjoy yourself and spend more.

The model doesn't make sense. I definetly don't use it as I know how to manage money.

The first 2 are totally up to the interest rates. If a model has 7yr 0% offer, then the best thing to do is $0 down and 7 years even if one has the money to pay the entire thing (the money can be invested). For higher rates, the down payment should be higher and term should be shorter to minimize cost of borrowing.
For the 3rd one, it is totally dependent on other expenses that one has, instead of using income as the only measure. As am example, for 2 people with the exact same income, person one (without a mortgage) can affort a much nicer vehicle then the second person (with, let's say, a $2000 monthly mortgage).

Use max years of cheapest financing when it's under 2% or lower then bank prime rate. For example, when buying Hyundai, everyone will hound you down for financing for 7yrs at 0%, but what kind of further discount would they give you when compared to paying full cash?

For example of current VW cheapest rate is 4 years at 1.99%. Do that instead of 2.99% for 5 or 6 years.

If rates are low, why put down payments? Use that money to invest on ROI higher then 2%.

Auga wrote: ↑ Looking under $30k for a used car.

But my little voice says.. Life is too short. Enjoy yourself and spend more.

Up to you. If you budget and plan for it do it.

do away with that formula ... go with

booblehead wrote: ↑ do away with that formula ... go with

I only did this once and it was on the 911. Man that hurt!!!

^ just don't look at the piggybank statement afterwards for a couple of years

I wonder how archaic this rule is. Is it from the same era as a house costing 10x the minimum income days?

10% income even considering gross is impossible to operate a car factoring in gas and insurance. The average canadian gross's $60k per year and 10% monthly is $500. Driving the average 15000km per year and you're looking at $100-150/mo in the physical car cost.

What's with these silly "rules". Just buy whatever your comfortable spending on... YOLO

How is it possible?

Let's say you bring home $4000 after tax.

You were able to put 10% down payment in a car.

Your car payment, gas, insurance, maintenance should be under $400???

For most people, gas alone is $200/m even they don't commute too far.

Lol 4years??
There are some bright folks who finance for 96months and have a balloon payment at the end of the term.

Best decision is just live near work and take the bus.

TSLA88 wrote: ↑ Lol 4years??
There are some bright folks who finance for 96months and have a balloon payment at the end of the term.

No. Taking 96 months loan is smart to stretch out payments and pay like lowest payment. Take all money and invest in investments. Just don’t buy the most expensive car one can afford.

MP3_SKY wrote: ↑ How is it possible?

Let's say you bring home $4000 after tax.

You were able to put 10% down payment in a car.

Your car payment, gas, insurance, maintenance should be under $400???

For most people, gas alone is $200/m even they don't commute too far.

That’s why OP has this dumb rule. Even driving a beater will easily need to pay for gas for 300 a month and maintenance. Even with a free car, it’s still not possible.

hahaty wrote: ↑ I wonder how archaic this rule is. Is it from the same era as a house costing 10x the minimum income days?

10% income even considering gross is impossible to operate a car factoring in gas and insurance. The average canadian gross's $60k per year and 10% monthly is $500. Driving the average 15000km per year and you're looking at $100-150/mo in the physical car cost.

There's people out there paying $500/month in insurance alone.