Looking to buy a new car, let me show you how to do the rich people way

Looking to buy a new car but afraid you won’t get approved? Afraid you won’t be able to finance it? Let me let you in on how the top 1% spends their money on a new car and still ends up wealthy.

Firstly you need to follow 20-4-10. The 20-4-10 means you put 20% of the car down as the down payment. Putting 20% down for a car purchase can lead to lower monthly payments, reduced interest costs, better loan terms, and increased financial flexibility. It's a financially prudent strategy that can save you money in the long run and make your car ownership experience more affordable and secure.

Putting more money down when purchasing a car can offer several advantages:

1. Lower Monthly Payments: One of the most immediate benefits of putting more money down is that it reduces the amount you need to finance. This, in turn, leads to lower monthly loan or lease payments. With lower payments, your monthly budget may be less strained, making it easier to manage your finances.

2. Reduced Interest Costs: When you finance a car, you typically pay interest on the loan. By making a larger down payment, you reduce the principal amount that accrues interest. This means you'll pay less in interest over the life of the loan, potentially saving you hundreds or even thousands of dollars.

3. Lower Loan-to-Value Ratio: A larger down payment decreases the loan-to-value (LTV) ratio, which is the percentage of the car's value that you're financing. Lenders often offer better interest rates and terms to borrowers with lower LTV ratios, as it represents less risk for them. This can result in a lower interest rate on your auto loan.

4. Improved Loan Approval Odds: A substantial down payment can make it easier to get approved for a car loan, especially if you have a less-than-perfect credit history. Lenders are more likely to approve applicants with a lower loan amount, as it decreases their risk.

5. Equity in the Car: A larger down payment means you start with more equity in the car from day one. If you decide to sell the car before paying off the loan, having more equity can make it easier to break even or even make a profit on the sale.

6. Shorter Loan Term: With a bigger down payment, you may be able to afford a shorter loan term. Shorter loan terms typically come with lower interest rates, and you'll pay off the car faster, which can help you save on interest and build equity more quickly.

7. Flexibility and Lower Risk: A substantial down payment provides a buffer against depreciation. Cars tend to lose value quickly in the first few years, but if you've put down a significant amount upfront, you're less likely to owe more than the car is worth during this period.

8. Less Risk of Negative Equity: Negative equity, also known as being "upside down" on a loan, occurs when you owe more on the car than it's worth. A larger down payment reduces the chances of this happening, which can be financially advantageous if you decide to trade in or sell the car before the loan is paid off.

The 4 in the 20-4-10 rule stands for a 4-year maximum payment/car note.

Having a 4-year car loan (car note) for a vehicle can offer several advantages:

Lower Total Interest Costs: Shorter loan terms typically come with lower interest rates. By choosing a 4-year car loan instead of a longer term, you'll pay less in interest over the life of the loan. This can save you a significant amount of money in the long run.

Faster Ownership: With a 4-year car loan, you'll fully own the car sooner. This means you'll have the title in your name and no longer have monthly car payments after just four years, which can improve your financial flexibility.

Lower Risk of Negative Equity: Cars depreciate in value over time, and if you choose a longer loan term, you may owe more on the car than it's worth (negative equity) for a longer period. With a 4-year loan, you're more likely to have equity in the car sooner, reducing the risk of being upside down on your loan.

Higher Monthly Payments: While this may seem like a disadvantage, higher monthly payments associated with a shorter loan term can be an advantage if you can comfortably afford them. It means you'll pay off the loan faster, which can improve your overall financial stability.

Flexibility: Shorter loan terms give you more flexibility to adapt to changes in your financial situation. You'll have fewer financial obligations tied up in the car loan, making it easier to allocate funds to other goals and expenses.

Less Total Debt: A 4-year car loan results in less total debt than a longer-term loan. This can be beneficial if you want to maintain a lower debt-to-income ratio, which can be important for other financial goals like buying a home or securing other types of credit.

Newer Car More Frequently: If you prefer driving a newer car and enjoy the latest technology and safety features, a 4-year loan allows you to upgrade to a new vehicle sooner than a longer-term loan would.

Financial Discipline: Committing to a shorter loan term can help instill financial discipline. It encourages you to make consistent payments and avoid excessive spending since you have a clear goal of paying off the loan within four years.

Potentially Lower Total Cost: While the monthly payments on a 4-year loan are higher, the overall cost of the car (including interest) may be lower compared to financing the same car with a longer loan term.

It's important to note that whether a 4-year car loan is advantageous depends on your individual financial situation, including your income, budget, and other financial goals. Before committing to any car loan, it's advisable to carefully assess your finances and choose a loan term that aligns with your budget and long-term financial objectives.

The 10 in the 20-4-10 rule means that only 10% of your monthly income should be the maximum payment you pay for your car payment.

For example-

If you make 40k a year/annual income- your car note should be $333.33

If you make 80k a year/annual income- your car note should be $666.66

If you make 100k a year/annual income- your care note should be $833.33

Secondly, the 35% rule is important because this determines your budget for the car. Now this number can vary due to the type of car you get. If you want a scoot-around car this can be changed to 20%-25%, but The most you spend on the car is 35% of your income.

$40,000 × 35% = $14,000

$80,000 × 35% = $28,000

$150,000 × 35% = $52,500

Thirdly, let me give you three tips that rich people use to buy cars.

Tip 1: Ask for different insurance rates for the car

Tip 2: try to buy a used car for 2-3 years

Tip 3: be mindful of maintenance costs. Use inments.com (car calculator)

If you're skeptical about purchasing a vehicle, you should try to set money aside monthly to help you out. Here are 5 tips on how to save for a car:

1. Set a Clear Savings Goal:

   • Determine the specific make and model of the car you want, along with any additional costs like taxes, registration, insurance, and maintenance.

   • Set a realistic savings goal that includes both the down payment and these extra expenses.

2. Create a Dedicated Savings Account:

   • Open a separate savings account for your car fund. This will help you keep your car savings separate from your other financial goals and make it easier to track your progress.

3. Automate Your Savings:

   • Set up automatic transfers from your checking account to your car savings account on a regular basis, such as each payday. This ensures that you consistently contribute to your goal.

4. Cut Unnecessary Expenses:

   • Review your monthly budget and identify areas where you can cut unnecessary expenses. Redirect the money you save into your car fund.

   • Consider reducing discretionary spending on items like dining out, entertainment, or subscription services temporarily to accelerate your savings.

5. Maximize Windfalls and Bonuses:

   • Whenever you receive unexpected windfalls, such as tax refunds, work bonuses, or gifts, consider allocating a portion of these funds to your car savings.

   • Selling items you no longer need or taking on a side gig to earn extra income can also help boost your car fund.

Bonus Tip: 6. Shop Around and Negotiate:

• While saving for your car, continue researching and shopping around for the best deals. Look for promotions, discounts, or financing offers that can help you get a better price on the vehicle.

• Don't hesitate to negotiate with the seller or dealership to secure the best deal when the time comes to purchase your car.

Remember that saving for a car requires discipline and patience. It's important to stay committed to your savings goal and avoid dipping into your car fund for other expenses. By following these tips and consistently saving, you'll be better prepared to purchase the car you want without straining your finances.

Lastly here are 5 tips to consider when buying your car:

1. Set a Budget and Stick to It:

   • Determine how much you can comfortably afford to spend on a car, taking into account your monthly expenses and other financial goals.

   • Consider additional costs beyond the purchase price, such as insurance, taxes, registration, fuel, maintenance, and potential financing interest.

2. Research Thoroughly:

   • Research different car makes and models that meet your needs, preferences, and budget. Consider factors like fuel efficiency, safety features, reliability, and resale value.

   • Read reviews, watch videos, and consult resources like Consumer Reports to gather information on the vehicles you're interested in.

3. Inspect and Test Drive:

   • Physically inspect the car you're interested in, or have a trusted mechanic perform a pre-purchase inspection to check for any hidden issues.

   • Take the car for a thorough test drive to evaluate its performance, comfort, and handling. Pay attention to any unusual noises or handling problems.

4. Check Vehicle History:

   • Obtain a vehicle history report (e.g., Carfax or AutoCheck) to check for any accidents, title issues, or other potential red flags.

   • Verify the car's maintenance history to ensure it has been well cared for.

5. Negotiate Smartly:

   • Be prepared to negotiate the price. Research the market value of the car and use that information to make a reasonable offer.

   • Don't be afraid to walk away if the price isn't right or if the seller is unwilling to negotiate. There are often other opportunities to find the right car at the right price.

Bonus Tip: 6. Consider Your Financing Options:

• Evaluate your financing options, including bank loans, credit union financing, or dealership financing. Compare interest rates and loan terms to get the best deal.

• Be cautious about add-ons and extended warranties offered by dealerships, as they can add to the overall cost of the car. Ensure you understand the terms and coverage before agreeing to any extras.

Remember that buying a car is a significant financial decision, so take your time and do your due diligence. Don't rush into a purchase, and be sure to read and understand all contracts and agreements before signing.