Tips To Decide On A Budget For A New Car In India

Buying a car is a significant financial decision. It's important to determine a budget that aligns with your income and financial goals. So, are you wondering 'how much should I spend on a car'? Or How much car loan should I take? 

In this article, we will explore practical tips to answer your question and help you decide on the right car loan budget for buying your new car in India. By following these car buying formulas, you can make an informed decision that suits your needs and ensures financial stability.

Deciding the car budget

When determining your car budget, there are some key rules to consider. One car-buying formula suggests not spending more than half of your annual income on a car. For example, if your annual income is ₹10 lakh, your budget for the vehicle should be around ₹5 lakh.

The other car-buying formula is known as the 20/4/10 rule of thumb. According to this car buying rule, you should aim to pay a down payment of 20% of the on-road price of the car, have a maximum loan tenure of four years, and ensure that the equated monthly instalment (EMI) does not exceed 10% of your monthly income. Use a car loan EMI calculator to decide on this.

Let's understand these car buying rules better with some examples. Suppose your annual income is ₹12 lakh; then, your vehicle cost should be below ₹6 lakh. Following the 20/4/10 rule, you would offer ₹1.2 lakh as a down payment, and the EMI should be around ₹10,000. In this case, you would need to take a loan of ₹4.8 lakh for four years.

Additional read: First Time Car Buyers Guide

How to stick to the car budget

Sticking to your car loan budget is crucial in maintaining financial stability. Here are a few tips to help you stay within your car budget:

1. Look for additional sources of funds: If you receive a bonus or have savings set aside, consider using these funds to cover the down payment or reduce the loan amount. This can help you lower the EMI and stick to your budget.
2. Consider a cheaper model: Instead of opting for a car that costs ₹6 lakh, explore more affordable options around ₹5 lakh. By choosing a cheaper model, you can reduce the loan amount and decrease your EMI.
3. Increase the down payment: By increasing the down payment, you can reduce both the loan amount and EMI burden. You can take the help of a car loan EMI calculator for this.
4. Consider buying used: Buying a used car can significantly lower the upfront cost and thereby reduce your loan requirement and EMIs. Check the car loan finance interest rate before taking the loan.

Remember, it's essential to spend based on your affordability rather than stretching your budget just because a loan is available. Always follow the car buying rule.

Conclusion

Deciding on an appropriate car budget for buying a new car requires careful consideration of your income and financial goals. By following key rules such as not exceeding half of your annual income and adhering to car buying rules like the 20/4/10 rule, you can make a well-informed decision. Additionally, considering factors like down payment, car loan finance interest rates, and opting for a used car can help you stick to your budget.

When it comes to financing your car purchase, Mahindra Finance offers a range of options tailored to suit your needs. Their competitive interest rates and flexible repayment plans can assist you in achieving your car-buying goals without compromising your financial stability. Use their online car loan EMI calculator to assess the affordability of different loan options.

FAQs

Q: How much should I spend on a car?

A: It is recommended not to spend more than half of your annual income on a car. Determine a budget that aligns with this guideline to ensure financial stability.

Q: How can I calculate my car loan EMI?

A: You can use an online car loan EMI calculator by entering the loan amount, interest rate, and tenure. It will provide you with the monthly EMI amount.

Q: What are the current car loan finance interest rates?

A: Car loan finance interest rates vary across lenders. It's advisable to check with different financial institutions or visit their websites for the most up-to-date rates.

Q: What is the 20/4/10 rule in car buying?

A: The 20/4/10 rule suggests paying a down payment of 20% of the on-road price, having a maximum four-year loan tenure, and ensuring that the EMI does not exceed 10% of monthly income.

Q: How much car loan should I take?

A: The amount of car loan you should take depends on various factors such as your income, down payment capability, and monthly budget. It's important to choose an amount that fits comfortably within your financial limits.