[NajSaf]

One other way of thinking is that you buy a car which is half of your annual income and you buy a house that is 4 times your annual income.
Another way is that the EMI should not be greater than your disposable monthly income.
But as stated by many in earlier posts, there are many ways to decide. Bottomline is that it should not pinch your pocket.

[Sargent_dallas]

I connect to this topic on all the levels, going through all the suggestions, I felt really dumb as I purchased without any prior financial work regarding a car purchase; I ignored all the thumb rules and brought a Jeep with zero down payment. The three mistakes I did

1. Not budging on features/ color. I wanted a sarge green Jeep with an Alpine Subwoofer and in an altitude package- This requirement made the choices extremely limited, thus leaving little room for negotiation

2. Not getting a pre-approved loan, most of my friends shopped around, and they know the rates/payment scenario.

3. Trying to close the deal the same day and taking a loan from the dealership with a high APR.


How I fixed my mistake:

1. Worked hard on upskilling and switched to a better paying job so that my car payments went down to 14% of my take-home salary from 21%.

2. Re-financed and managed to get a lower interest rate.

3. Switched to Tennis and Sand-Volleyball from Indoor volleyball to save on the club membership and tournament participation fees.

However, I wouldn’t repeat the same mistake; the next car I buy, I will probably buy it with at least 50% in cash and the car payments not exceeding 5% of the take-home salary.

[SnS_12]

Been working for almost 20 years now and haven’t bought my first car yet.

Also, I am one of those guys who would never buy anything on borrowed money personally and especially one that depreciates in value over time. Further, the other personal criteria I have set for myself financially is whether I can buy that particular item twice/thrice at the same price without loosing sleep over my bank balance. Reaching/achieving this financial discipline has been tough, but, now it feels totally worth it for the peace of mind it provides in the long run financially.

Over the years I almost considered buying a Abarth Punto then the VRS and the latest was the M 340i but eventually I just canned the idea as I have decided more than a car I want to get done with the corporate rat race at the earliest and be financially independent. 🤞

[kvamshi04]

Originally Posted by Bhodrolok

This! It's also about the daily experience especially with our roads and traffic. A good car brings a smile on the lips every time you start it. I would rather spend more on a safe and enjoyable car than buy jewelry every year.

As a bachelor, I follow this , YOLO. Why buy gold and keep it in a bank locker, instead buy a bigger Motorcycle and decent car. Ride to work, on a highway and chill. Have used this excuse to dodge wedding for sometime.

But, now I can hear those wedding bells clearly, and have started visiting gold shops, can surely see my Harley dream money going in buying jewellery.

[Rahkehs]

In quite a number of the posts above, people have suggested against buying Car on loan, but doesn't it make sense to take a loan if ROI offered is very low like 7-7.25% which was the rate last year and invest the available cash somewhere else to get better returns.

Also, if people are generally aware what their income will be in future (like in case of Govt jobs), Loans make sense as provision of EMIs can be kept in future financial planning!

[SLK]

Very interesting topic:

1) Earlier in my career, in the 2000s, I used to believe that a car can be as expensive as my CTC, considering the fact that, then it would be an affordable amount in EMI.

2) As things moved, car prices sky-rocketed and I was stuck with the previous era mindset, finding everything overpriced and wastage of money.

3) 2013 or so onwards, made sure that I buy cars only cash-down, helped me control overspending on cars.

4) Social standing is another issue, driving a hatch to work and parking it in between the brigades of SUVs takes some courrage. But trust me, its all in the mind because I do drive a hatch to work! One has to just go across the tipping point after which it doesn't matter and the hatch still makes me happy! and is also much easier to park.

5) With zero social security in India, post 40 years of age, it is not wise to overspend of cars, unless they are say about 15-20% of the annual income.

[fiat_tarun]

There is definitely no 'one size fits all' in this scenario. As long as you have planned your investments well, have financial security at home (i.e., parents not dependant on you) you can be much more aggressive with your car purchase. Since my passion is driving, I take the conscious decision to reduce discretionary spend elsewhere and spend on my car.

At the end of the day one needs to live in the moment and enjoy experiences when you can rather than wait for the theoritical 'right time' when you probably won't enjoy it as much !

I bought my Ecosport S 5 years ago with a 40% down payment and 60% loan even though I could have put down a little more, but I choose to invest the excess liquidity in equity which has returned ~15% (way above the interest of 8.5% I paid) which I think the Indian markets will continue to give over the next decade. My next purchase will also have about a 50% or more loan component as this is a risk I am willing to take.

[Acharya]

A conservative guidance map of spend on cars, at certain age vs income combination.
The idea being, one is allowed to splurge a bit if earning well in early years. Go slow during 40s on Auto spend. If one has saved enough and continue to earn well during 50s, you can spend slightly more on yourself.

[raghavrayudu]

"Anyone who lives within their means suffers from a lack of imagination." - O Wilde

As that quote goes, I am of opinion that some decisions in life are beyond the rationality of maths and economics and pie charts and cars are one such for me.

If you have big aims, that motivates you to do better in life and you'll eventually figure out. So I don't strictly believe in having only part of percentage as EMI or spend only X percent of CTC on car, in these decisions, heart kicks in and alters the rationality and I don't quite regret, but the pleasure is definitely worth for all we know it's only one life. and it's not necessarily the YOLO trap, but if you dream big, you'll somehow figure out.

But this applies only to those who have some specific preferences in everything that they go for, if one is looking for something that's having four wheels, well, we've the readymade formulas and doesn't require much of a wisdom.

[ralto]

Originally Posted by Acharya

Attachment 2487331

A conservative guidance map of spend on cars, at certain age vs income combination.

Thanks for putting this in an organized manner. Kind of matches the overall discussion of the thread so far.

However, I'm taken aback to see that if someone is between the age of 35-45 and household income is also 35-45 LPA (pretax), then it is sensible for them to spend just around 12 lacs on a car. Yikes! That won't even get a decent trim on Xuv300 and Venue on-road. Even if there was a 50% stretch, which is quite a bit at that, then still won't land them in Creta/Grand-Vitara top spec zone which is a proverbial unofficial middle-class benchmark in the current market.

As someone pointed out a few posts ago, looking at how people are buying cars as per the monthly reports published on the forum and looking around in my circle, I think not even 1/4th of them are following any such thumb rules.

Time for me to introspect.

[charanreddy]

Some very good advice on this thread !

In my own view, I would only spend the amount that I am comfortably loosing. I.e. if rs 20 lakh is the maximum amount you are willing to loose with out losing too much sleep, then just spend that much on a car.

Other rules of thumb :

1. Combined EMI from home and car cannot exceed 40% of net take home.

2. Car value should not exceed 20% of the net worth at any point in time.

A few exceptions exist if this is your first car ( A segment ? ) and it leads to a significant increase in your quality of life .. for example , it becomes easier to make those hospital runs with elders or easier to safely commute to office etc.

[mayank4823]

In my opinion, it's hard to make a thumb rule on what percentage of income should be the car value. I overspent on my recent car purchase but that was only possible because:

1. I was saving for a car (in a mutual fund) for 2 years now and my savings are usually 30-35% of my monthly income. This particular mutual fund for car has yielded me 22% returns p.a.
2. I got a decent value for my old car. (Got 40% of the old car cost. Car was 11 years old).

Combining points 1 and 2, I was able to pay 30% of the total value of my new car as down payment. The EMIs now are 15% of my monthly income.

[Rahkehs]

Originally Posted by Acharya

Attachment 2487331

A conservative guidance map of spend on cars, at certain age vs income combination.
The idea being, one is allowed to splurge a bit if earning well in early years. Go slow during 40s on Auto spend. If one has saved enough and continue to earn well during 50s, you can spend slightly more on yourself.

I would like to respectfully disagree with these random conservative figures which suggests a person (aged 35-40 yrs) earning 35 lakhs should buy Tata Punch or similar car. There is no such formula, it all depends on an individual's circumstances e.g., a person in a good Govt. job can easily buy a car with EMIs amounting to 15-20% of monthly net income since he/she is sure that the salary will continue to increase, there is rare chance getting unemployed and will get pension benefits at retirement. I have seen officers of armed forces with Fortuners/Endeavous which would be impossible if formula of this table is adhered to.

[d3mon]

Originally Posted by Acharya

Attachment 2487331

A conservative guidance map of spend on cars, at certain age vs income combination.
The idea being, one is allowed to splurge a bit if earning well in early years. Go slow during 40s on Auto spend. If one has saved enough and continue to earn well during 50s, you can spend slightly more on yourself.

This chart reads more like a minimum amount that a t-bhp member must spend on a car at a given age/income level, rather than the maximum

[Bhodrolok]

Originally Posted by Acharya

Attachment 2487331

A conservative guidance map of spend on cars, at certain age vs income combination.

Are the number in green percentages of yearly income or absolute value in lakhs?