Navigating the 20/4/10 Car Buying Rule

The video discusses the financial implications of car buying, introducing the 20/4/10 rule as a guideline for managing car expenses. The rule suggests putting 20% down, financing for no more than 4 years, and keeping monthly expenses under 10% of gross income. An example illustrates the benefits of this rule, but alternatives like buying used cars are also explored. The video concludes with advice on financial planning for car purchases.

Why is it important to learn how to buy a car the right way?

• Because cars are a significant financial investment that depreciate.

• Because cars increase in value over time.

• Because cars are the cheapest items we buy.

• Because cars are easy to finance.

What is the first component of the 20/4/10 rule?

• Finance the car for no more than 4 years.

• Put at least 20% down on the car.

• Keep total monthly vehicle expenses under 10% of gross income.

• Buy a car that is less than 5 years old.

According to the 20/4/10 rule, what is the maximum loan term for financing a car?

• 5 years

• 3 years

• 6 years

• 4 years

In the example given, what was John's monthly payment if he did not follow the 20/4/10 rule?

• $465

• $455

• $475

• $485

How much interest did John pay over the course of a 5-year loan without following the 20/4/10 rule?

• $2,900

• $1,850

• $3,500

• $4,000

What is one benefit of following the 20/4/10 rule?

• No need for a down payment

• Higher interest rates

• Shorter loan term

• Lower monthly payments

What is an alternative to following the 20/4/10 rule?

• Buying a new car with a longer loan term

• Financing a car for 6 years

• Leasing a car

• Buying a used car with cash

How much could John save annually by buying a $5,000 used car instead of financing a new one?

• $7,000

• $4,500

• $5,460

• $6,000

What is a potential downside of buying a used car?

• Lower resale value

• Higher maintenance costs

• Longer loan term

• Higher monthly payments

What should you consider when buying a new car?

• Only the purchase price

• Resale value and maintenance costs

• The brand of the car

• The color of the car