How to use the Rule of Number 10 to buy a Car?

If you want to buy a car, you should always do your research before deciding on the budget and arranging an auto loan for the new automobile. One thing that will always help you is the Thumb Rule of Number 10. It ensures that you plan your car budget well and do not face the burdens of exorbitant monthly payments and car maintenance expenses.

Car Buying Tips: What does the Rule of Number 10 Say?

It says that you should always focus on the number 10 while buying a car. Let's understand in detail.

1. Car Budget: 10% of your Gross Annual Income

While deciding on your car budget, always makes sure that you do not plan to buy a car that is more than 10% of your gross annual income. Many people tend to spend a colossal amount on a car, thinking that it is a one-time expenditure. An automobile is a depreciating asset, and you lose money the moment you drive it off the lot.

The Opportunity Cost - While buying a car, consider the opportunity cost of your decision. If you spend an extensive amount on an automobile without deciding on the proper budget and adequate assessment of your needs, you will make a wrong financial decision. Consider the various avenues where you could have invested that extra amount and how much returns you would have earned from your investments.

Car-Related Expenses - Did you know that auto loans do not cover taxes, insurance payments, garage rent, and other monthly maintenance charges related to owning an automobile? They will come out of your pockets. The price of the car is not the only thing that you will pay, but you will also have to bear all the expenses in maintaining the vehicle. Hence, buying a car that costs more than your financial capability will create a considerable impact on your budget.

Extra Car Features - The luxurious the car, the costlier the accessories! If you buy a vehicle that is too high in price, you would always want to spend more on accessories. And, the expensive accessories will always keep you worried about the car maintenance charges. So, spend only ten percent of your yearly income on buying a car. This way, you will not only be saving yourself from the monthly hustle of shooting up your budget but also live a stress-free life without obsessing over your car and its maintenance.

2. Monthly Payments: 10% of your Gross Monthly Income

If you are planning to purchase a car with the help of an auto loan, keep in mind that your monthly payments should not go over 10 percent of your gross monthly income. Because along with your monthly payments, you will also have to spend on the insurance, taxes, and other charges for your car.

While deciding on the loan, keep in mind that it should not be putting a financial burden on you. Keep your loan term short and your interest rates affordable. And, the best way to do it is to reduce the amount of loan that you want to take for your car. You can also pay 10 percent of the car price as the down payment amount. It will reduce the loan burden and the number of monthly payments.

3. One Additional Tip! Choose a Relatively Newer Car

If you are buying a used car, don't buy one that is older than ten years. We know that an automobile is a depreciating asset, and it loses a majority of its value in the initial ten years of usage. Choose a newer car with less than 100,000 miles on the odometer. It is also necessary to get it checked by a trusted mechanic.

While planning your car purchase, keep this Rule of Number 10 in your mind. It will help you in choosing the right car and the right auto loan. It will also reduce the burden of expenses in your day-to-day life.

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