When shopping for a used car, it’s important to know which used car loan you can afford. It’s easy to let your eyes get big when you see something that’s really nice and really expensive. Anytime my I get into a rental car that’s considerably nicer than my current car, I make sure to tell myself, “Don’t go falling in love with this, because there’s no way you can afford this.” This is because I immediately refer to one simple rule in my mind. A safe bet is to follow the 20/4/10 rule. This will help you to keep a realistic plan in mind when saving and shopping for your next car in Bend, Oregon.

The 20/4/10 rule goes as follows:

  • Save for a 20 percent down payment

  • Apply and budget for a 4-year car loan

  • Budget for car loan payment and operating costs at 10 percent of your monthly net income

Down Payment20% – Down Payment

Make a down payment that’s 20 percent of the total cost of your new car, truck, or SUV. Sometimes buying a new form of transportation is an emergency, so you probably don’t have that amount sitting in your change jar. However, if you’ve been planning to buy a used car for a while, set 20 percent of the cost as a goal for your down payment. This not only helps reduce the cost of the vehicle by 20 percent, but helps you to understand the true value of the vehicle you’re buying in Bend. So, if you want to buy a used Toyota Tundra that’s priced around $35,000, set $7,000 as your goal for a down payment.

4-Year Car Loan

Shop for a car that’s priced to fit your monthly budget with a 48-month car loan. As we know, it’s easy to spread the loan out over a longer term like 60 or 72 months to lower the cost of the monthly payment. However, this will increase the amount you’ll pay in interest and skyrocket the end amount that you pay for the car. With a four-year loan as the ideal term for your loan, be sure to keep your monthly payment within the parameters you’ve already set.

10% – Monthly Payment and Vehicle Operating Costs

An easy way to budget your monthly car payment is to try to keep your monthly payment and operating costs under 10 percent of your monthly take-home income. Don’t budget this off your gross income, because you could end up “car poor,” which is when your car payment is sucking up all your monthly funds and you’ll have a hard time meeting the financial demands that come with operating your car. For example, if you bring home $3,000 each month after taxes and whatever else, you can afford a monthly car payment and operating cost of $300 monthly. Use a car loan calculator to help estimate your monthly payment with the proper loan term.

It’s important remember that there are other costs that come with owning a car besides the monthly payment. You’ll have to insure your car, put gas in it, and change the oil. Maintaining your car in Bend shouldn’t drain your savings account or consume your paycheck just to put gas in it. Keep in mind that high-end sports cars don’t run on fuel with an 89 octane rating or simple 10W-40 oil. If you’re in the market for a something like a used Mercedes-Benz C-Class, you’re going to need to put premium fuel and synthetic oil in your budget.

Take this rule with you when planning your monthly car payment. This will help you easily find a used car within your budget and still live comfortably