Understanding the 20/4/10 Rule for Car Financing, Courtesy of O’Brien Mitsubishi

Just like every “big-ticket” purchase, creating a practical budget is essential before buying a car. One tried-and-true method of budgeting – and one that our Mitsubishi finance experts endorse – is the 20/4/10 rule.

20 Means ‘20% Down’

The first step of this rule is to determine a down payment amount that you’re comfortable with. The down payment is the amount of money you’ll pay upfront for the car you buy at O’Brien Mitsubishi.

In our experience, a down payment that’s at least 20% of the car’s purchase price is optimum. By putting down at least 20% of the car’s purchase price, you’ll be able to reduce not just the amount of your monthly payment but also the total interest you’ll pay on the car.

Of course, we understand that not everyone is able to provide a 20% down payment, which is why we’re well-prepared to work with customers who are more comfortable with a different percentage.

4 Means ‘No More Than 4 Years’

Another factor to be aware of when buying one of our new Mitsubishi cars is the length of your car loan. In our opinion, you should avoid signing off on any loan that’s longer than four years. Why do we advise this? Because the longer the loan, the more you’ll end up paying in interest.

So, even though your monthly payments could be slightly lower with a five- or six-year loan, in the end you’ll wind up paying considerably more interest than you would for a four-year loan.

10 Means ‘10% of Income’

The last part of the ‘20/4/10’ equation is the number 10 – which represents the amount of your monthly income you should set aside for your monthly car payment. We strongly recommend that when calculating your budget for one of our new or used cars near Bloomington, you don’t exceed 10% of your monthly income.

If you make $5,000 a month, don’t spend more than $500 a month on a car. Keep in mind that you’ll need to account for other monthly expenses such as insurance and gas.

Finance a Mitsubishi Vehicle Today

Ready to buy your next Mitsubishi vehicle? Visit our website today to see our latest models, and then apply online for financing. Afterwards, contact our team of Mitsubishi dealers and schedule a full walkthrough and test drive.