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The New 20/4/10 Rule for Autos, RVs, and Motorcycles

Wouldn’t it be great to have a hard and fast rule for buying an auto? 

Making a significant purchase is challenging, and there’s no shortage of advice. Knowing what to finance, what to put down, and how long your loan term should be is a puzzle. 

Lucky for us, some folks spend time figuring out the perfect formula for getting into a new or used rig. When it comes time to sign your name on the dotted line, having a plan is the right way forward. 

Today we’re looking at wisdom from a YouTube financial guru, plus additional tips. 

Let’s jump in!

A New Financial Rule For Buying an RV or Other Vehicle

YouTuber Marko Zlatic has the kind of knowledge we can use. His video on the Whiteboard Finance channel explains the 20/4/10 rule for purchasing a vehicle. This simple formula puts the buyer in the driver’s seat when driving into deep financial waters.

Zlatic describes this formula as allowing for the minimum outlay but maximum benefit. Old wisdom dies hard, but he gives us the tips and tricks he feels give us the most financially sound method. 

And it isn’t smoke and mirrors.

It makes sound financial sense to follow his advice. Going to the whiteboard for this video, we learn about down payments, loan term, and the percentage of monthly income that goes toward a payment. 

Who Is Marko Zlatic?

Marko Zlatic, the brains behind Whiteboard Finance, grew up as the child of immigrant parents. He spent his childhood fascinated by stock markets, finance, and investing. Like many young entrepreneurs, he started small. Buying and selling Pokemon cards and mixtape CDs taught him the importance of knowing what you have in a financial deal. 

After high school, he started investing in the stock market and attended college to study finance. In 2010, he graduated with a degree in Finance and started working full-time. 

He decided he had knowledge to share from his experience in investing and working for tech startups, commercial real estate, and banks. So, in 2017, he started his YouTube channel and consulting company Whiteboard Finance. 

Tell Me More About the 20/4/10 RV Buying Rule

Zlatic developed the 20/4/10 rule around buying a car, but we can scale it up to purchasing an RV (or scale it down for a motorcycle). In the video, he explains the numbers. 

The ‘20’ represents the amount you should expect to have on hand for a down payment. For a car that costs $25,000, that number comes to $5,000. For an RV price of $125,000, that calculates to $25,000. What the down payment does for the life of a loan is reduce the amount you’ll pay monthly and the length of the loan term. 

The ‘4’ represents the length of the loan term in years. Zlatic recommends a four-year loan term because it reduces the interest you pay over the life of the loan. For a car, a four-year term means you’ll save around 50% in interest, or approximately $1,500. 

And for a $25,000 car, that makes a big difference. But what about an RV? That same number looks just shy of $10,000 over the four years. 

The final number, ‘10’, is a little bit trickier. It represents the percentage of your monthly income that should go towards the vehicle. If a person makes $7,000 a month, which means they shouldn’t pay more than $700 monthly. 

Does this number pan out for an RV purchase? That’s an excellent question. Using the same formula would mean a loan term of four years is nearly impossible. For a $500 monthly payment, you’d have to pay for 200 months or 16 years. That’s a bit long.

To pay off that same RV over 48 months, you’re looking at a payment of $2000 per month. And if your RV is your home, that might make sense. Unless you make $240,000 a year, then you’re all set!

Should I Pay Cash For an Auto, RV, or Motorcycle?

Let’s say you want to buy with cash. You have a trade-in and are ready to pay the remaining cost in cash. Understand that dealers make their money on the interest rolled into the payments. So the more payments you make, the more they make. 

Zlatic describes how you can make intelligent choices without looking like a rube. Go through the traditional process of buying your vehicle up until you get into the back room. Don’t tell them you want to pay cash. Let them finance your vehicle. Most of the time, there’s a sales price when you get into the back room. 

The dealer knocks off some of the price they expect to make back through payments. Negotiate your way through this process. Ask them to take the cost of any mandated fees off the vehicle. 

Ensure that there isn’t an early payoff penalty on the loan too. This is key. Put down your 20% and walk away with your new RV. Then, pay it off when you get your payoff amount from the lender in a month or so, pay it off.

Done. You just saved yourself some serious cash. 

Three Additional Rules For Buying an RV

Zlatic gives some wise financial advice in his videos. And for cash buyers, you’ll benefit from his experience. These are great tips for RV buyers wanting to jump into an already hot market. We have a few more that will help you make an intelligent choice. Check out these rules before you head to the dealer, and you’ll thank us. 

#1 Know Yourself

Knowing how you plan to use your RV, one that fits your lifestyle, is extremely important. Take some time before you head to your dealer to take an inventory. If you plan to mainly adventure in your rig, visit national parks, boondock, and spend time outside your RV, you need to consider that. 

You’ll want a vehicle that fits your needs. Do you have pets or kids? Could you use the extra space a larger RV provides? Sure. Do you need it? Maybe not.

Working from your list allows you to make the smart choice during a high-pressure sale. You know what you need. 

#2 Research

This goes without saying until it doesn’t. Do your research. Find out what new and used RVs are available in your area before you go on the lot. Maybe something out there fits your requirements and won’t set you back quite as much. 

Used RVs come with many perks and don’t have the breaking-in period a new rig has. You’ll have information from the seller that will give you accurate running cost information. If you take the time to inform yourself about the options, you do everyone a solid by being prepared. 

#3 Have the RV Inspected

Say you find the RV you want. Make sure you have it inspected. For a used RV, the seller should have detailed service records that let you see what problems they’ve fixed. New parts on a used RV mean it’ll be longer before you need to replace them. They add value to the rig too. 

A new rig off the lot may not need an inspection but go through it anyway. Take it for a test drive to your mechanic and let them give it the once-over. They’ll let you know whether there’s a flaw in the system that will cause problems for you down the road. 

Protecting yourself is vital because once the sale is final, the problems become your problems. 

Be Smart When Buying an RV

Buying an RV is a big step and going in prepared and with your finances in order is a must. If you start small, the 20/4/10 rule is a great thing. Getting into a van or Class B first gives you the momentum to step up in a few years. 

Take the time to ensure you know your needs, what you can do without, and the non-negotiables. This makes the whole process serve your purposes. 

And if you’re moving out onto the road full-time from a house and can pay cash, go for it! Do it right, and you’ll save yourself enough in payments to make it a dream come true.

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