[AirbusCapt]

Simple. Follow the 33% rule. Save/invest 33% of your take home.
Spend 33% of your take home and keep all your EMI to within 33% of your take home.
If you dont have a house EMI, then your car EMI can be the whole 33% of your take home. Say your takehome is Rs 2 lakh per month, then you can afford a car EMI of approx Rs. 65k.

[Himanshu809]

I think a very generic thumb rule for big ticket purchases (especially depreciating assets) like bikes, cars, tech gizmos (phones, tablets and ancillary products) is ->

If you can’t buy it twice, it’s too nice(for you).

It means - If you can’t buy something (a car, phone, bike etc twice at your current liquidity status. Like it’s mathematically impossible, you shouldn’t buy it.

Works under the human assumption that no one’s dumb enough to obliterate their entire current liquidity (money) for something that needs money itself to use.

Works for me.

[maverick029]

For me its more on terms of why a car rather than which one can I afford. With growing traffic jams a car will only increase my commute time and it then will only be used in rain and roadtrips. This has muted my interest in purchasing a brand new car. In my view EMI for a car should not be more than 10-15% of take home salary. 10k p/m should be a good number or better yet a used car makes lot of sense if this number cannot be met.

[Himanshu809]

Originally Posted by maverick029

For me its more on terms of why a car rather than which one can I afford. With growing traffic jams a car will only increase my commute time and it then will only be used in rain and roadtrips. This has muted my interest in purchasing a brand new car. In my view EMI for a car should not be more than 10-15% of take home salary. 10k p/m should be a good number or better yet a used car makes lot of sense if this number cannot be met.

For salaried people you can I guess jump to even 20% of the salary as EMI provided you don’t have other concerns such as house rent, or kids to take care of; Again that depends on your situation/age and many other factors at play. But I agree with you that used cars are amazing. I recently was looking in the market and you do save a lot as cars are too expensive these days relative to what they offer no matter how you look at it. You can’t get a decently equipped and safe car below 15 lakhs and that’s not chump change. Not long ago it used to be 10.

[UNSC117]

Originally Posted by rx100

That means more than 95% of salaried class won’t be able to buy a car given the entry level cars on road price starts at around 8L nowadays. One has to earn 2L per month(more than 30L pre tax annual salary) to afford one.

That is sort of how it is in India. Only very few people even for the tax bracket.

[kaps454]

Originally Posted by rx100

That means more than 95% of salaried class won’t be able to buy a car given the entry level cars on road price starts at around 8L nowadays. One has to earn 2L per month(more than 30L pre tax annual salary) to afford one.

Well then, there is an un-tapped market somewhere, needs smart marketing though (remember the Nano?). At 4 lakhs in today's money, makes it about 1.3 pm for 3 months and 1 pm for 4 months. Else bikes and/or public transport for me atleast. And I didnt make this rule up, read it about 20 years back when I landed my first real job when I was reading about managing finances. Bought an Indica Vista Terra (base model) then with no loans even though I could afford something much fancier (twice as expensive) and stayed within the 4 months rule. Paid off then (compared to my peers) and have stuck to it since.

regards kaps454

[thomahawk]

In my opinion, financial discipline is what one needs. As long as your car purchase doesn't land you in trouble (you have emergency funds in place), I think you can dream big. I am terrible at this, and I am on my 3rd hatchback ownership in a span of 10 years. The cars were what I could afford with my salary. But that doesn't mean I'm prudent - should have bought that one car - which I really loved - and would have served me for years at least a decade (I'm yet to find that car though).

[antz.bin]

Originally Posted by charanreddy

I may have said this in the past, but repeating myself.

There are 3 classes of car purchase. 1) Necessary (relatively) first car ever. and 2) Discretionary and 3) Luxury / Aspirational.

1) Neccesary :

I bought my first car in 2013, a Chevy Beat Diesel and I could immediately see a big jump in my quality of life. The hospital runs for my parents or the occasional runs to my village or a quick temple run was super easy and loads better when compared to taking the bus or a cab (gets very expensive if we do this regularly). I am sure this is the case for most young families. Go buy your first affordabe car and be open to step over the 6 month salary rule if need be. Doesnt mean we get a Mercedes, means we buy the car we can afford (Alto , Wagon R, Swift , Dzire etc.). Hopefully A or B segement. Control for fuel efficiency and maintenance costs ( so a japanese make)..

2) Discretionary :

Anything C segment and above, make sure finances are controlled. At any case dont spend more than 6 months of your salary. Be willing to buy used if need be. This is where the big bucks get spent and if one is casual about personal finance, it can be a very costly lesson.

and 3) Luxury : If buying a Merc or Audi or BMW or above , dont buy it if you cant buy the thing twice over with out a significant impact to your finances. the 3% / 5% net worth rule is good to apply here too..

This, by far has been one of the most balanced posts on this thread so far.

Couldn't have put it better. Thank you for this post.

To add to this, my Necessary B Segment car was equal to my ~10 months of salary. I paid 25% down and the remaining 75% was loan. The loan itself was ~8 months of my in hand salary. A HUGE number by the numbers going around on this thread. But in EMI terms, it wasn't that huge a number and It is a different matter that I easily paid off my 5yr loan in exactly 3yrs & 10 days (10 extra days to avoid prepayment penalty).

The upgrade was from 2-wheeler + cabs so a HUGE upgrade! A huge upgrade warranted the seemingly huge amount.

But now that the Discretionary upgrade is from a small car to a larger one, I will definitely keep my budget/payments to a much lower level than I did last time. Since this probably won't be that big a jump in terms of quality of life. I am yet to identify what that should be.

[Entsurgeon]

Originally Posted by Rajat347

As per SBI, car's ex showroom price should not be more than 60% of your annual take home income.
This is what I was told when I went there for a car loan.

Misinterpreted that.
SBI would not give any loan, the EMI of which (combined with other EMIs at the time of borrowing) amounts to >60% of take home salary.

A car costing 60% of annual salary, for a loan of 5 years would need 110% of your annual income in EMIs alone. Just not feasible.

Besides banks would only bother for their loan amount vs income. If you are eligible for 10 lakh INR loan, you could get a 1.1 Crore car making a down payment of 1 Crore and borrowing the rest. They don’t give a damn.

[Guna]

Originally Posted by Entsurgeon

A car costing 60% of annual salary, for a loan of 5 years would need 110% of your annual income in emis alone. Just not feasible.

Are you saying that someone earning (post tax) 10 lakhs can't buy a car costing 6 lakhs?
For 100% loan, the EMI would be Rs 13000 (with 10% interest rate) and the person still has Rs 70000 for other expenses. Why is it not feasible and why would the bank refuse the loan?
On the other hand, EMI can't be 60% of the monthly take-home salary (unless the car also doubles up as his/her house)

[Entsurgeon]

Originally Posted by Guna

Are you saying that someone earning (post tax) 10 lakhs can't buy a car costing 6 lakhs?
For 100% loan, the EMI would be Rs 13000 (with 10% interest rate) and the person still has Rs 70000 for other expenses. Why is it not feasible and why would the bank refuse the loan?
On the other hand, EMI can't be 60% of the monthly take-home salary (unless the car also doubles up as his/her house)

Not me. The person I replied to interpreted that and I called him on that.

Someone earning 10 lakhs in hand annually has 50k per month as his 60% take home. Eligibility of borrowing would vary depending on repayment period. He can borrow ~25lakhs for 5 years with 50k EMI. Or ~18 lakhs for 2 years or ~30lakhs for 7 years. All figures are approximate but nearly ballpark for current rates of interest.

One's car may or may not double up as his home but mostly, a bank would only finance you upto an amount, the EMI of which is not more then 60% ish of his take home. Whether he doesn't own a home and won't be able to for the repayment duration is none of bank's concerns. Teaching financial prudence is not their job.

PS- to buy a 7 lakh OTR car by borrowing 6 lakhs INR for say 5 years, the EMI would generally be around 12k. Thus a person should earn 20k a month take home to be eligible.

[TheRandomGuy]

So I have gone through this thread and been following the comments since I joined team-bhp last year.

Everyone discusses the finances from a self point of view, but never as a family.

Especially in cases where both the husband and wife are earning.

Can all these formulas be applied by taking the combined household income or are we still looking at it individually?

[Axe77]

Originally Posted by TheRandomGuy

Can all these formulas be applied by taking the combined household income or are we still looking at it individually?

It needn’t be spelt out literally no? I thought it’s quite obvious that the discussion can be applied in the context of income available as a family unit.

Ultimately, please apply all guidance (with all its inherent range of subjectivity) to overall money / income available on a current and prospective basis to overall liabilities (this includes dependents and their needs, whether spouse, parents, children or otherwise). The latter aspect too has been brought out in detail.

[efuture]

Car : Used Tata Zest Diesel 1.3MJD 90ps
Purchase Date : December 31, 2022
8.25% of total annual CTC (Me=my wife, It was our first big purchase together after marriage)

Why car? OLA and Uber is charging more than 30 Rupees per km for small trips (<10km) that was the first trigger point

Why cheap used car? That is more than enough, we could have bought harrier or safari on a 2/3 year loan, but why?

Just keep 50k annual budget in mind to avoid any surprises.
Running so far - 19,000km
Service Cost - INR 53,500
Fuel Cost - INR 101,700

Just a small story - If anyone had saved the money on Altroz top model diesel - used zest diesel in 2023 Jan and invested in Tata motors, you can buy a Harrier without any loan now

[lordrayden]

Originally Posted by DasAuto1985

Now I own a car for which the EMI is too much and its putting a dent on my finances. Any tips/ideas on how to mitigate this, other than of course to get a job that pays more

First of all, I applaud your attitude. You have the courage to publicly admit that you have made a mistake and you have prioritized "fixing the problem" rather than "what would others think" or "let me try and hide my problem".

Here's my perspective:
Most of our incomes (be it jobs or businesses) will have a decent (more than inflation) increase every year. Have you considered the possibility that even though the EMI is pinching you now, it may not pinch you as much in 2 years, or 3 years? If I were in your place, I would put this down in an excel sheet, using rough projections of projected increase in income. It will give you an idea of what percentage of your income the car EMI is now and what it could be in the future. If it looks manageable in the future, I would tighten the screws on other expenses just a little bit for a few years to ride this out. Like many others have suggested, selling a new car is not the best thing to do financially.

And do not forget, you have gained something very valuable through all of this ... wisdom . You now have the power to prevent yourself and possibly others from doing something like this in the future.