How Much Can I Spend on a Car India

22nd June 2019, 12:00 #1

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Financial thumb rules to follow when buying a car

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Dear Moderators,
Not sure if this violates any forum rule or is under the correct thread. Advance apologies as this is my first post here.

Saw that turbo charged swanky automobile whizz past you. You see your best mates changing cars every three years. You absolutely love that fancy new car launched..These thoughts might have crossed some of us. As much as we buy our car from our heart, a head too has a role to play. I love cars with all my heart but my head thinks about money too.

Buying a car may be a dream for some , luxury for some or just a necessity for some. Whatever be the scenario, I have complied few financial thumb rules that may help you in making financially prudent automobile purchase decisions

Note: Thumb rules are not set in stone or scientifically proven but are prudent financial guidelines.

20/4/10 Vehicle rule
This rule talks about the prudent practices while purchasing a vehicle / car by way of a loan.

Rule
The rule states that you should make a down payment for the loan of at least 20% of the on road price; the tenure of the vehicle loan should not be more than 4 years; the total expenses towards the car ownership should be less than 10% of gross annual income (total expenses ideally should include vehicle loan EMI expenses + fuel expenses + insurance + any other vehicle expenses like parking rentals )

Example
Let us say your annual income is 20 lacs (20,00,000). This rule states that your yearly transportation costs (car loan EMI + annual fuel expenses + annual insurance) should be less than 2 lacs.

50% Car rule
This rule talks about the maximum price we can budget for purchase of a new car.

Rule
Car affordability = 50% of Gross annual income

Example
If you are making 20 lacs per year (gross) then you can plan for a car worth 10 lacs. In this case if you wish to go for a new Audi Q7 worth 70 lacs then clearly you are stretching beyond your affordable range.

10 year Car rule
This rule states that to be financially prudent one needs to use a new car for at least 10 years. Car is one thing which depreciates quickly. The value of a car falls minimum 15% the moment it hits the road and is out of the showroom.

10 years of vehicle ownership is considered ideal to get maximum value of your vehicle purchase taking into consideration the effects of depreciation as well as possible spiraling of maintenance expenses of older vehicles.

Generic -
36% Debt rule
Assuming you are a wonderful customer for your bank having availed housing loan, vehicle loan and personal loan then this rule states the maximum amount you can spend by way of loan / debt payments

Rule
Maximum Monthly debt (EMI) payments = 36% of Gross monthly income

Example
If you make 1 lac (1,00,000) a month then the total of all your monthly loan EMI's should not exceed 36,000

Its better to be approximately right than precisely wrong. Use these thumb rules as a general yardstick than a precise measure.

Would love to know of anymore thumb rules while buying a car

Happy Motoring
Bluehead

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Last edited by GTO : 24th June 2019 at 12:02. Reason: Spacing - thanks for sharing buddy!

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How Much Can I Spend on a Car India

Source: https://www.team-bhp.com/forum/indian-car-scene/210397-financial-thumb-rules-follow-when-buying-car.html

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