Understanding the 20/4/10 Rule for Mazda Financing

A car is not cheap. For most people, it’s their most expensive purchase next to a house. Applying for Mazda financing in McKinney, TX is a great place to start, and it can also help to apply the 20/4/10 rule. Learn how this rule works and how it’s effective for an automobile purchase.

What the 20 Means

What’s the 20 in the 20/4/10 rule? It means to put down a 20% down payment for your car purchase.

Why 20%? You have less to owe with a higher down payment, which means you take out a smaller loan. In turn, this equals lower interest rates and a shorter repayment period.

Some loan companies also require a higher down payment in order to qualify for their loan. A higher down payment demonstrates you have ample funds in the bank.

What the 4 Means

The number four represents the maximum number of years you should repay your loan. Four years keeps the interest rate to a minimum while keeping monthly payments manageable. You could opt for a shorter or longer loan term, but that would mean paying more monthly or more interest over the course of your loan.

What the 10 Means

The 10 is represented as a percentage. Your car payments should comprise no more than 10% of your monthly income. It’s especially important not to go over 10% if you have other major expenses, such as another car payment or a mortgage.

Visit El Dorado Mazda to see our inventory. Once you have selected a model, go to our finance center. Apply the 20/4/10 rule to take home a model like the Mazda CX-50.