With RAM financing, you have the flexibility and convenience of paying for a new vehicle in small monthly payments, rather than all at once. However, it can be tough to determine exactly how much you should spend. That’s where the 20/4/10 rule comes in. Learn what this rule means with the finance experts at Cook Chrysler Dodge RAM.

What’s the 20/4/10 Rule?

The 20/4/10 rule is essentially a financing guideline. The rule sets up parameters for buyers interested in financing their car. It outlines how much of your monthly income you’re able to spend, as well as the term and down payment you should aim for.

What’s the 20?

The “20” in the 20/4/10 Rule is your down payment goal. If possible, you should aim to make a down payment of at least 20 percent on your purchase. While not every buyer can make this size of a down payment, it’s a good goal to help you avoid having negative equity or being “upside down” in your loan.

What Does the 4 Mean?

When you finance a vehicle, you also have to decide how long you want to finance it. The “4” is your loan term. If you can, you need to aim to keep your total loan length, also known as its term, around four years. This strikes a balance of not paying too much in interest with a longer term, while not having your monthly payments be too high as you would with a shorter term.

What’s the 10?

The “10” is your overall spending goal. Your monthly auto expenses should be under 10 percent of your take-home pay. This includes not only your vehicle payment, but other expenses like fuel and insurance, too. We encourage you to utilize an auto payment calculator to get an estimate of your monthly payment so that you know how much you have to spend.

Apply for RAM Financing in Aberdeen, MD

The 20/4/10 rule was designed to help you spend responsibly. However, if you can’t meet these parameters, that doesn’t mean you won’t be approved for RAM financing. Visit Cook Chrysler Dodge RAM to discuss your options today!