Advertiser Disclosure

Auto Loan

Shopping for a New Car? Use the 20/4/10 Rule

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

auto car driving drive

Imagine you’re in the market for a new vehicle. Where do you begin your car-buying process? Do you already have a dream make and model in mind? What’s your budget? Are you already browsing the interwebs for the car you want? If you are, you’re already starting off on the wrong foot — at least according to the 20/4/10 rule.

What is the 20/4/10 rule?

The 20/4/10 rule helps car shoppers figure out how much car they can actually fit into their budget before falling in love with a vehicle they can’t afford. It emphasizes calculating what you can afford before you set out shopping.

The rule might seem obvious — before you buy something, you should make sure you can afford it, right? — but it gets tricky when it comes to financing, and many don’t take the time to include annual ownership costs. If you don’t, you could end up with monthly transportation costs that could force you to live paycheck to paycheck or take on more debt.

Follow the 20/4/10 rule, and you might avoid accidentally biting off more than you can chew.

Rule #1: Put down at least 20%

A vehicle is a depreciating asset. The experts at Carfax estimate a new car loses 10% of its value the moment you drive off the lot. And the depreciation continues from there. Edmunds.com estimates a new vehicle loses over one-fourth of its value in the first year alone. For that reason, you should be prepared to put down at least 20% of the purchase price. If you do this, you’ll finance payments for the vehicle’s actual estimated value when you leave the lot instead of the full purchase price, which the vehicle isn’t worth anymore.

Take this example: You finance a new car for its full purchase price of $34,000, then lose your job the next day. Now, you might need to sell your new car, but you can sell it for only $30,600 — because the car already lost 10% of its value once it left the lot. Since you put $0 down at financing, you’ll still owe $34,000 after the sale. On the other hand, if you’d put down at least $6,800, you could sell the car that day for its estimated value and only lose out on half your down payment.

You might not be able to estimate exactly how much car you can afford, but if you are able to put down at least 20% of the purchase price, you should be in an OK financial position. On top of that, you’ll have smaller payments and possibly finance it for a shorter period.

Rule #2: Finance the vehicle for no more than four years

The longer your financing agreement is, the more you’ll pay in interest over time. So don’t be swayed by dealers or lenders who try to sell you on a lower monthly car payment — chances are your payment is so low because the term of your loan is long.

You can use the MagnifyMoney loan calculator to see this rule at work. If you borrow $25,000 to purchase a car (at a 4% APR) and agree to a six-year financing deal, you’ll wind up paying $3,161 in additional interest charges by the time you pay off the loan.

If you agree to a four-year loan instead, you’ll pay just $2,095 in interest — a savings of over $1,000. Of course, that shorter term loan also comes with a higher monthly payment — $564 versus $391 — but you are saving more over the long term.

Think of it this way: If you can’t afford the monthly payment required to pay off the car in four years or fewer, it’s probably outside of your budget.

Rule #3: Keep your total transportation costs under 10% of your monthly income

This last part is where it gets easy to overspend. You should try to keep your total transportation costs — your car payment, insurance, gas, and maintenance — under 10% of your monthly income.

So, if you earn $5,000 per month, your total transportation costs shouldn’t cost more than $500.

How to save on the cost of a new car

Try these tips to keep your overall transportation costs low.

Get pre-approved for financing

Avoid financing your vehicle through the dealer, and get pre-approved for financing at a lower rate before you show up at a dealership. Financing your auto loan at a lower rate can reduce your monthly loan payment. If you walk onto the lot with a pre-approved auto loan rate from a bank or credit union, you can use that as leverage for negotiation.

However, if you let the dealer find the loan for you instead, you’ll lose negotiating power, and there won’t be a way for you to tell if the dealer’s loan rate is the best offer you can get. Avoid making these other common mistakes when searching for a car loan.

Buy used

More people are purchasing used cars than ever before and saving a bundle in the process, according to Edmunds. Over 38 million vehicles sold in 2015 were used, a year-over-year increase of 5.6%.

When you buy used or certified pre-owned vehicles, you avoid financing a larger balance, and could even skip financing altogether if you’ve got enough cash on hand. If you buy used, avoid engine trouble by having the vehicle inspected by an independent mechanic before you sign off. You can use a resource like Car Talk to find a mechanic in your area.

Buy a car that holds its value

Depreciation is a car owner’s largest transportation expense during the first five years of ownership, more than fuel, maintenance, and even insurance.

A car that holds value well will depreciate less over time compared to the average vehicle, so you may not lose out on as much in depreciation costs if you sell the vehicle after a few years. Carmakers like Honda and Porsche are known for building vehicles that hold their value well over time according to Kelley Blue Book.

Lease instead

Leasing a car will usually result in a lower monthly payment, and you’ll likely save money with a lower down payment and lower tax fees over time. However, you could be subject to extra charges if you ding up the vehicle, or drive more miles than stated on the lease agreement. It doesn’t always work for everyone, so consider your personal needs first.

On the plus side, you’ll upgrade to a new vehicle every few years and won’t need to deal with the hassle of selling a car.

Look for gas savings

Gas isn’t always an unavoidable expense. You can make a few changes to your fueling habits like filling up before you hit “E” or signing up for a gas rewards credit card to save money. You could also cut down transportation costs by cutting back how often you drive or by carpooling some days to school or work. Learn more ways to reduce your gas spend here.

Comparison shop

Don’t get lazy with must-haves like maintenance and insurance for your vehicle. Comparison shopping is the best way to save on costs like these that may differ from provider to provider. Insurance companies have made it easier to compare quotes with online comparison portals like this one from Progressive. You could also try going through your bank or credit union for discounted rates with select companies.

Don’t just take the first estimate you get for a repair. Mechanics are known to pad the bill with unnecessary repairs from time to time. After you figure out what’s wrong with you vehicle, get an estimate from a few different mechanics in your area. That way you’ll make sure you’re getting the best value before paying for maintenance and repairs.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at [email protected]

Advertiser Disclosure

Auto Loan

Chase Auto Loan Review

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Chase auto loan review
iStock

Going into a dealership without knowing what auto loan you qualify for can be a dangerous adventure for your wallet. It’s best to have a couple auto loan preapprovals in your back pocket so the dealership can’t take advantage by charging you a higher APR. To help you research which lenders offer best rates, we did some work for you. Here, we’ll review auto loans by JPMorgan Chase & Co: the company, its rates, its pros and cons, how to apply and who may be a best fit.

About Chase

The largest bank in the U.S. with more than $2 trillion in assets, Chase offers everything from mortgages to credit cards.

Chase offers auto loans in all 50 states and D.C. with terms from 36 to 72 months. It also offers the car-buying service TrueCar at no extra charge. This service lets you see what others have paid for the same or similar cars, and has a network of TrueCar-certified dealers which compete for your business with clearly posted car prices.

Chase financing: At a glance

A Chase auto loan could be an option for you, whether you’re looking at a new or used car from a dealership. The bank may also refinance your existing auto loan or help you buy your car at the end of its lease period.

Though Chase declined to share its APR range, “Chase Auto offers competitive rates based on [a] customer’s credit history and the structure of the loan,” said Shannon O’Reilly, a communications executive with Chase, specializing in auto finance. You may be able to get an idea for what rate you might receive by using Chase’s Auto Loan Calculator.

Chase loan rate example

We used the Auto Loan Calculator to compare APRs for a new 2018 Honda in Michigan.

Credit scoreAPRMonthly payment
Excellent4.49%$365
Very good5.04%$371
Good6.84%$390
Fair15.09%$487
APR and monthly payment are for a 72-month loan of $23,000. Rates vary by location. Rates as of 1/7/19.

Are you an existing Chase customer? Chase offers a 0.25% rate discount for Chase checking customers interested in refinancing an existing auto loan. To qualify, you’ll need to have a Chase checking account before you apply for a Chase auto loan, and elect to have your monthly car payment automatically deducted from your Chase account.

A closer look at Chase auto loans

Here are the strengths and weakness we found looking at Chase auto loans. Be sure to compare any auto loan offers you may get from Chase with offers from other lenders.

Highlights of Chase auto loans

  • Credit decisions are usually made within three hours; three days is the maximum time to receive a decision.
  • There is no application fee.
  • Chase ranks in the top half of JD Power’s 2018 U.S. Consumer Financing Satisfaction Study for auto loans.

Lowlights of Chase auto loans

  • Chase doesn’t offer coupon books for you to keep track of your payments.
  • You may not be able to get a loan with Chase if you have poor credit.
  • Chase doesn’t offer auto loans for cars bought in private sales.

How to apply for a Chase auto loan

To apply, you’ll need to go to Chase’s website, call Chase or go in person to a Chase branch.

Whichever way you decide to apply, you’ll have to provide your personal information (e.g. name, date of birth, address, phone number, email, Social Security number), employment and income, the car you want, the loan amount and loan term you want.

You could apply by yourself or with a co-applicant. And if you need to change the car, loan amount or loan term once you’ve begun the application process, you could simply call Chase. Still, keep in mind that any changes you make could result in changes to your APR and other facets of the auto loan offer.

The fine print

To qualify for a Chase auto loan, you need to be at least 18 years old (in Alabama, 18-year-olds have to meet specific state requirements). Chase doesn’t finance all makes and models of cars: some lenders are reluctant to finance a car that is older than 10 years, has more than 100,000 miles or has a salvage title; Chase says it reviews any unique circumstances on a case-by-case basis.

Any offer Chase provides is good for 30 days. If you decide after 30 days that you would like to get an auto loan through Chase, you’ll need to apply again.

Who is Chase best for?

Chase loans are best for existing Chase customers. If you aren’t already a Chase customer, you may be able to quickly become one and receive the 0.25% rate discount on your auto loan. The convenience of having everything in one account, especially if you’re already a Chase customer, is alluring.

It also doesn’t hurt your credit to apply to multiple lenders within a 14-day window anymore than it would to apply to one lender — plus, shopping around for a car loan is one of the smartest things you can do.

So, if you think Chase may be a good fit for you, apply to Chase and compare the offer you may get with responses from other lenders. Potential lenders include your bank, credit union and online lender. And at LendingTree you could fill out an online form and receive up to five potential auto loan offers. LendingTree is the parent company of MagnifyMoney.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at [email protected]

Advertiser Disclosure

Auto Loan

RV Buying Tips: Get the RV of Your Dreams

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

RV buying tips
Getty Images

Ever dream of buying an RV? You’re not alone — about 10 million households in the United States already own an RV.“The popularity of RVing is at an all-time high because of the freedom and flexibility RVs offer,” said Kevin Broom, director of media relations at the RV Industry Association (RVIA). “With the same RV, people can take an array of trips, spend time having adventures with friends and family and form memories that will last a lifetime.”

When shopping for a unit, you’ll need to consider what type of RV suits your needs, how much time you plan to spend in the RV, whether you want to buy a new or used unit (or lease an RV) and how you plan to pay for it. This article will explain the costs of owning an RV, as well as how you can get your best price.

The costs of an RV

RVs have a huge range of prices, which vary depending on size, style and other factors, said Broom. As of the date of publishing, here are some estimates for a variety of new RVs, according to the RVIA:

  • Folding camping trailers: $6,000 to $22,000
  • Truck campers: $6,000 to $55,000
  • Conventional travel trailers: $8,000 to $95,000
  • Fifth wheel trailers: $18,000 to $160,000
  • Type B and C motorhomes: $60,000 to $150,000
  • Type A motorhomes: $60,000 to $500,0000

You may be able to save some money by opting for a pre-owned RV instead of a new one, added Julie Bennett, who, along with her husband Marc Bennett, authored the book “Living the RV Life: Your Ultimate Guide to Life on the Road,” and run the RV Success School.

“We have met people who spent less than $5,000 on their RV, and others who spent over $1 million,” said Marc Bennett. “Most of the people we have met that do extended travel in their RVs typically spend between $50,000 and $150,000 on their RV setup, which includes the cost of the truck and trailer, or a motorhome plus the vehicle that they tow.”

You generally don’t need a special license to drive or tow an RV, said Broom, but it’s not a bad idea to look into the laws in your state, especially if you’re buying a very large trailer or motorhome.

The RV, as well as the truck and trailer if the RV needs to be towed, is just one of the costs to consider. You’ll also need to budget for maintenance and repairs, taxes, insurance, vehicle registration, fuel and storage. These expenses can vary from state to state.

There are also an array of optional (though potentially desirable) add-ons, like roadside assistance and extended warranties, that can increase the bottom-line costs of RV ownership.

“RV dealers will try to upsell you on things like paint protection and other options you may not really need,” said Marc Bennett. “You’d be surprised how much all of this can add up, so do your homework in advance and know what you are getting yourself into before committing.”

What kind of RV should you buy?

One of the first things to consider when figuring out which type of RV you should buy is how often you intend to use it.

“If you only plan on RVing a few weeks a year for short vacations, it really doesn’t make sense to spend a whole lot,” said Julie Bennett. “If you’re planning on using your RV for extended travel or even live in it full-time, then it’s easier to justify a bigger investment.”

Here are some other questions you should ask yourself when shopping for an RV:

  • Who will be traveling in the RV? A couple of retirees who are OK roughing it on the road might opt for a travel trailer, while a large family with pets may be better off with a camper van or motorhome.
  • Where do you plan to take the RV? Julie Bennett suggests that potential RV owners think about whether they want to stay in campgrounds with hookups for electricity, water and sewage, or camp off-grid in more remote places, and find an RV that fits those needs.
  • Do you need a special license for the RV? Large trailers or motorhomes may require a special license in certain states, said Broom.
  • What “toys” are you bringing in your RV? You may need to splurge on a larger RV or motorhome if you plan to take bikes, ATVs, kayaks and other recreational gear on your adventures.
  • Does the RV have a floor plan and layout that makes sense for you? “Pay attention to the things you will use most often,” advised Julie Bennett. “Is there sufficient counter space in the kitchen for making meals? Can you fit inside the shower and wash your hair?”
  • How far will you take the RV? If you want to keep costs in check on long-haul trips, you might need to pay more attention to things like the weight and aerodynamics of the RV. You should also consider whether you want a diesel or a gas engine. Gas engines generally don’t get as much power or as efficient mileage as their diesel counterparts, but they tend to be less expensive.

Should you buy a new or used RV?

Every future RV owner is faced with one big question: Should you buy a new or a used RV? Here are some pros and cons to consider.

Pros and cons of buying a new RV

Pros

  • You know the history of the RV. Buying a new RV means you don’t have to worry that a previous owner cut corners on care and maintenance.
  • You can personalize the RV. “Some may like that they can choose their floor plan, layout, decor, color scheme and options, and some may want the latest technologies,” said Marc Bennett.
  • You can avoid potential allergens. Does your child have a severe peanut allergy? There’s no guarantee a used RV doesn’t contain peanut residue from a previous owner, so you might be safer buying a new one.

Cons

  • You’ll probably pay more. “Not only will you pay more for new, you will also see the sharpest dip in depreciation as soon as you drive it off the lot,” said Marc Bennett.
  • You still may need to make repairs. Just because you’re buying a new RV doesn’t mean it will be trouble-free. “RVs are very complex, and built by hand in relatively low-tech facilities,” he added. “Once new RVs leave the dealer’s lot, they tend to need more repairs and fixes — much like a punch list on a new house build.”

Pros and cons of buying a used RV

Pros

  • You’ll probably save money. The older an RV is, the more of an effect depreciation will have on its price tag, said Julie Bennett.
  • It’s already broken in. The problems associated with a brand new RV may have already been taken care of by a previous owner, which could save you time and money on repairs.
  • It might come with extras. People often include extra items when selling their RVs, said Julie Bennett. You may luck out with an upgraded suspension, RV gadgets or kitchenware at no additional cost.

Cons

  • It comes with risks. If the previous owner didn’t maintain an RV properly, it may need new parts or repairs.
  • You may need to renovate it. If an RV’s aesthetics are dated or simply unappealing, it’s on you to fix it up.
  • It probably won’t have a factory warranty. You may need to shell out for repairs right away before you can drive the RV, said Julie Bennett.

Where can you buy an RV?

There are a variety of places to buy an RV — and according to Marc Bennett, you may need to travel far to find the right one at the right price: “We traveled thousands of miles when buying our first RV. Opening up geographically allows for much more selection,” he said.

Here are some of the places you can start your search for an RV:

  • New RV dealerships: Looking to buy a new RV right off the lot? Then shopping at a new RV dealership might make the most sense. “Buying from a respected dealership might provide some peace of mind that they have checked the unit and it is ready to go,” said Marc Bennett.
  • Used RV dealerships: Used RV dealers might not know as much about the history of a particular unit as its original owner. However, you may be able to purchase an extended warranty for some added protection.
  • RV shows: RV shows offer the opportunity to see a wide variety of models in one place. Should you find the unit of your dreams at an RV show, you may be able to score special discounts.
  • Private sales: Buying a used RV directly from its owner allows you to learn more about its history, maintenance and unique quirks, said Marc Bennett. “An owner will be able to share much more detailed information about the specific RV than a dealership,” he added.
  • Online marketplace: Do you already know exactly what you’re looking for in an RV? An online marketplace could help you find it quickly. RVTrader.com and Craigslist are popular places to find private RV sales online, said Broom.

How do you get your best price on an RV?

The price tag on an RV can give you serious sticker shock. Luckily, there’s lots of room for negotiation, and you should not plan to pay the asking price, noted Marc Bennett.

“There’s no hard and fast rule about how much discount you can get on an MSRP [manufacturer suggested retail price],” he said, “but it is not uncommon to buy a new RV for 15% to 30% off the MSRP.”

Going into the negotiation armed with knowledge can help you get your best price on RV, added Julie Bennett.

“Get a few price comparisons on the RV you want to buy,” she said. “Know what questions to ask, know [what’s] a fair price for the RV you want, and keep an eye out for deals at certain times of year,” also noting that you may be able to get the best price when a dealer is clearing out old models to make room for new units.

If you can’t afford to pay cash, you may be able to take out an RV loan or secure other financing to make the purchase. Here are some ways to finance your RV:

  • Dealership financing: Dealerships may offer financing through lending partners (such as a bank or credit union), or offer in-house financing. This is convenient, as you can get your RV and your loan all in one place. However, dealers may use this type of financing to bolster their bottom line, so if the rate offered isn’t competitive, you might find a better offer somewhere else. Additionally, dealership in-house financing, which is usually offered to people struggling to find financing elsewhere, can carry high interest rates.
  • Banks, online lenders and credit unions: You may be able to secure an RV loan from an online lender, credit union, bank or other financial institution. Since dealers may not have partnerships with lenders you’re interested in, you may need to seek out quotes directly from the institutions themselves. Make sure to shop around to compare offers. Though credit unions may have lower rates, you’ll need to become a member.
  • HELOC or home equity loans: You may be able to use a home equity line of credit (HELOC) or a home equity loan to secure the funds for an RV. With both of these options, you’re borrowing a portion of your home equity. Keep in mind that you’re putting your home on the line with this type of financing, so make sure you’re on firm financial footing before moving forward. However, because the loan is backed by collateral, interest rates tend to be lower. With either option you’ll also need to pay closing costs, a process that can take several weeks or longer.

The bottom line

RVs offer the freedom to travel the country on your terms. Whether you dream of a life on the road or you’re just looking to spend a couple of weeks in the great outdoors every summer, you can get an RV to make it happen.

Remember: There’s no one-size-fits-all solution to finding or financing the RV of your dreams. Do your homework, know what you’re looking for and don’t be afraid to walk away from a bad deal. The right RV is out there waiting for you — and with enough legwork, you’ll find it.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Joni Sweet
Joni Sweet |

Joni Sweet is a writer at MagnifyMoney. You can email Joni here