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Wednesday, July 20, 2022

Understanding the 20/4/10 Rule for Honda Financing

When it comes to Honda financing, there’s no better team than Pacific Honda. We believe the financing process doesn’t have to be overwhelming. In fact, it should be accessible and affordable for all of our drivers. That’s why we offer financing tools and resources, and why we’re sharing common financing guidelines, like the 20/4/10 rule.

20/4/10 Rule Explained

The more confident you feel about the financing process, the more easily you’ll find the right car at the right price. That’s where the 20/4/10 rule can really help. Check out this breakdown of the 20/4/10 financing guideline, and how it can work for you.

Down Payment

The down payment is the amount of money you give to the dealership the day you take your vehicle home. When you have a higher down payment, you can expect lower monthly costs, which means you’ll be able to pay your vehicle off more quickly. With the 20/4/10 rule, it’s recommended that you put down 20% of the vehicle’s total value.

Term Length

Another important factor to consider when financing your new Honda is the length of the term. Longer terms may have higher interest rates, but it’s important that your monthly payments still fit your budget. The 20/4/10 rule suggests a four-year term as ideal.

Transportation Costs

Car payments aren’t the only transportation costs you’ll want to account for. Monthly costs may also include fuel, insurance, and your maintenance and service costs.  According to the 20/4/10 rule, the sum of your monthly transportation costs should be no more than 10% of your monthly income.

We make new and pre-owned vehicle financing smooth and easy here at Pacific Honda, with guides like the 20/4/10 rule. Make us your one-stop shop for financing tools and resources, as well as the vehicles you can’t wait to take home. Begin the test-driving and financing process at our dealership today. 

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  7. 20% Down Payment: It suggests making a down payment of at least 20% of the car's purchase price. This helps reduce the amount of money you need to finance, lowering your monthly payments and decreasing the overall interest paid over the life of the loan.

    4-Year Loan Term (or less): The second part of the rule recommends financing the car for a maximum of four years. Shorter loan terms generally mean higher monthly payments but less interest paid over time. It also ensures you're not paying for the car for an extended period, and it aligns with the typical depreciation curve of a vehicle.

    10% of Monthly Income on Car-related Expenses: This part of the rule advises that your monthly car payment, plus the cost of insurance and maintenance, should not exceed 10% of your gross monthly income. This helps ensure that you can comfortably afford the car without straining your overall budget.
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