Want to buy a car.. which one should I buy and how much should I spend? Know the magical formula of 20/4/10 as per salary; Understand the entire budget with 10 accurate calculations

Be it a middle-class family or a corporate professional, buying your own car is everyone’s big dream. But often people go to showrooms or get trapped in the tempting advertisements of 100% on-road finance of banks and buy a car much bigger than their capacity. The result is that for the next 5 to 7 years, a large part of their salary is spent only on paying car EMI and not a single rupee is left for investment or emergency fund.

A car is a ‘depreciating asset’, losing 15% to 20% of its value the moment it leaves the showroom. Therefore, it is wise to buy a car at such an expensive price that it does not burden your lifestyle and savings.

Financial advisors and wealth planners around the world to buy a car 20/4/10 formula Considered the safest:

• 20 (20% down payment): You should make a down payment of at least 20% to 30% of the total on-road price of the car from your own pocket (savings). Buying a car with zero down payment becomes a trap of huge interest.

• 4 (4 years loan tenure): The tenure of car loan should be maximum 4 years (48 months). In a long loan of 5 to 7 years, you pay only half the cost of the car as interest to the bank.

• 10 (10% monthly budget): Monthly car EMI (and ideally total vehicle expense including petrol and maintenance) should never exceed 10% to 15% of your monthly net in-hand salary.

Along with this, another popular rule ‘50% annual income rule’ According to which the total on-road price of the car should not exceed 50% to 60% of your annual gross in-hand earnings.

(Note: The calculations given below are a practical roadmap based on a loan tenure of 4 years and a car loan interest rate of around 9% to 9.5%)

While buying a car in the showroom, the sales executive only quotes the EMI, but in reality the monthly cost of owning a car is 40% to 50% more than the EMI:

• Fuel/Charging: If you drive 30 to 40 km daily, the monthly petrol-diesel expense can easily reach ₹5,000 to ₹8,000.

• Annual Insurance: Comprehensive insurance for new vehicles provides an annual shock of ₹20,000 to ₹50,000 every year.

• Regular Servicing and Maintenance: The average cost of twice a year servicing, engine oil, washing and wear-tear parts comes to ₹10,000 to ₹25,000.

• Parking and Toll: Society parking charges, office parking and Fastag toll combined add up to an additional expenditure of ₹1,500 to ₹3,000 per month.

1. Do I have a safe 6 month emergency fund? If your bank balance is getting empty after making the down payment of the car, then postpone the decision of buying the car now.

2. Will my monthly SIP be stopped? If you have to stop your future investments or PPF to pay the car EMI, then you cannot afford that car.

3. Is it a ‘need’ or just ‘show off’? If your running is less than 200-300 km a month, then using cabs (Uber/Ola) or rental cars instead of buying a new car of your own is a direct saving of lakhs of rupees.