A huge money is needed to be spent on a car. The cheapest car is priced at about four lakh rupees. In addition, you can purchase cars worth millions of rupees. However, not everybody can afford that amount of money. In such a scenario it is common for people to take out loans to purchase cars. The loan is repaid via EMI. This means that the loan is paid in monthly installments. However, if you are taking loans to purchase an automobile, you must always remember to adhere to a formula, the formula for this is 20-10-4. This formula is extremely useful to those taking out car loans. Keep these rules in mind & car loan borrowers will be able to effortlessly pay off the EMI.
How do I use the formula 20-10-4?
The initial 20 of the formula 20-10-4 indicates that the down payment should be 20 percent of the price on the road for the car and the remaining sum is the amount of the loan. In other words, 10 indicates that EMI for the loan must not exceed 10 percent of your income per month. Then, 4 indicates that the term of the loan must be at least four years. In the formula 20-10-4, the 20 represents 20 percent in down payments (of the cost of the vehicle) 10, which is an EMI of 10% of annual income, and 4 the loan’s tenure which is four years.
Based on this formula.
If you purchase the car, then you’ll not be burdened with the charges associated with loans. It is possible to repay the car loan and pay for all other costs that you need to pay by utilizing your earnings. But, if you raise the amount of your down amount by 20 percent, it’s not easier to repay the loan. Therefore, try to make an amount of more than 20 percent (of the price of the road). If you can, this will lower the amount of the loan as well as reduce the EMI.
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