20-4-10 rule for shopping: The new Hyundai Creta (facelift) has arrived in the market. Its design has changed compared to before, many new features have been added and a new engine has also been added. Now if you are thinking of buying the new Creta, first know whether you can accept it or not. For this, the world famous 20-4-10 formula is used in finance.
According to the 20-4-10 formula, you should make a down payment of at least 20 percent of the car’s on-road price. The loan tenure should not exceed 4 years and the EMI should not exceed 10 percent of your monthly income. We will be implementing this on the base variant of Hyundai Creta. The base variant of Creta-E is priced at Rs 11 lakh (ex-showroom), which will have on-road prices of around Rs 12.70 lakh.
If you make a down payment of 20 percent, you should have around Rs 2,54,000. Then, a loan of Rs 10,16,000 should be taken, which will be taken for 4 years at 10 percent interest rate (assuming), then the EMI will be approximately Rs 25,768. Now we know that according to the 20-4-10 formula, EMI should not exceed 10 percent of the monthly income.
This means that to buy the base variant of Hyundai Creta, your monthly income should be around Rs 2.5 lakh. However, if you can afford a higher down payment, you can afford a Creta even on a low income. For example, suppose you take a loan of Rs 4,70,000 with a down payment of Rs 8 lakh, your EMI will be Rs 11,920 (based on the calculation above).
Thus, to buy the base variant of Creta, your monthly income should be around Rs 1.2 lakh. Similarly, you can make your own calculations according to the 20-4-10 formula.