As the festival of Holi is approaching, various car companies will begin launching several offers on automobile purchases. You can expect to find great discounts and attractive deals on a wide range of cars during this festive season. If you’ve been considering buying a car for a long time, then it’s a great opportunity to take advantage of the special offers available.

What is the 50/20/4 rule?

Smart buyers do excellent research before buying a new car. There is a popular 50/20/4 rule for making the best purchase and cracking the best deal. Learn about the rule and follow the mentioned guidelines for good financial choices:

•    The price of the car should not exceed 50 percent of your annual income. Before considering buying a car, make sure that you have created a budget. This helps ensure that the cost of the car is manageable within your budget and prevents any financial burden in the future. 

•    Aim to make a down payment of at least 20 percent of the car’s price. For instance, if you’re buying a car worth Rs 10 lakh, then make a down payment of 20 percent of the car’s value in a year, which amounts to Rs 2 lakh in this case. 

•    The ‘4’ in the rule refers to the loan tenure. The duration of the car loan should not exceed four years. By limiting the loan tenure to four years, you can pay off the loan quickly, reducing the overall interest paid. This method ensures that you don’t stay in debt for a long time.

Other things to keep in mind

Before applying for a car loan, compare the interest rates offered by various banks. Small differences in the interest rates can make a big impact on your EMIs. So, it’s best to make a wise choice before the final purchase. Additionally, carefully understand the pre-closure terms. Many banks impose penalties for pre-closure. Learn about all the details to avoid unnecessary penalties.

Many banks also impose processing fees on car loans. It is recommended to gather right information about the processing fees before obtaining a loan. If you master the 50/20/4 rule while making an informed decision, you can easily land a great deal.