3 Golden Rules for Buying a Car
Rule 1: Use the 20/4/10 Guideline
Financial experts generally recommend putting at least 20% down, keeping the loan term to no more than 4 years (48 months), and ensuring your total transportation expenses don't exceed 10% of your gross monthly income.
Rule 2: Get Pre-Approved First
Never walk into a dealership praying they give you a good rate. Secure pre-approval from a bank or credit union before you shop. This effectively makes you a cash buyer and forces the dealership to beat your rate to earn your financing.
Rule 3: Beware of 84-Month Loans
A 7-year loan guarantees that your car's value will drop much faster than you can pay off the principal. If it gets totaled in year four, insurance will pay you market value, but you will still owe the bank thousands of dollars (being "underwater").
Continue Your Financial Planning
Make sure this vehicle fits into your broader financial picture with these tools: