The value of a car depreciates rapidly as soon as it’s driven off the lot. With that in mind, paying cash for a car is great choice, but we realize not everyone has that option.
If you need to purchase a reliable vehicle to get you to work and take care of your family, we have a Money Guy 20/3/8 rule of thumb that allows you to take on a car loan in a wise and financially responsible way.
The 20/3/8 rule stands for:
- 20% down
- Finance no longer than 3 years
- Total car payment is no more than 8% of gross income
Also, make sure your car payment doesn’t exceed your monthly investments. We want to make sure your army of dollar bills is still working for you!
The only exception to this rule applies to buying luxury vehicles. For these types of cars, pay cash or pay it off in one year.
Check out our free car-buying checklist!
And, before you start shopping, calculate how much car you can afford with our free 20/3/8 car affordability calculator
For a more in-depth look at car purchases, check out the following episodes of The Money Guy Show.
