[aseem]

Alrite folks, I am trading on dangerous waters. But I have been wanting to write this thread without giving my salary away. Yet I feel its prudent to know what is considered a "good" car buying decision based on the salary you earn. The thing is that when I was in my early 20's my car EMI was almost 50% of my salary. As we grow older we get other EMI's added to the list of things. House, kids, entertainment, travel, etc eat up a lot of your budget. At this point of time your priorities change and so does your risk changing appetite. Now my car loan is merely a low percentage of my salary. So that brings up a very valid question in my mind. Its given that every situation is different and no two individual are same. But having said that one can always define a range based on his or her salary as to what is a balanced car he can afford per his salary. I have seen many directors driving Zen, and many engineers driving Honda City. Those are exceptions, what I want to be able to gather from this thread is, what you feel is an appropiate spend on a car given a persons salary:

1) 5-10 Lakh Per annum (how much can be allocated for a car?)

2) 10-15 Lakh Per annum

3) 15-20 Lakh Per annum

4) 20-25 Lakh Per annum

5) 25-30 Lakh Per annum

6) 30 + Lakh

The answers should be like:

Salary bracket

1) Alto, Santro etc

2) Swift/i20 etc

etc....

The idea I am trying to get at the end of the day is, what car I should be considering once I read all the options and only I know my salary

[amtak]

I have loans, if I close them, Linea/Accent/I20/Jazz etc category. Right now, I cannot even afford a Nano!

[hiren.mistry]

Originally Posted by amtak

I have loans, if I close them, Linea/Accent/I20/Jazz etc category. Right now, I cannot even afford a Nano!

My sentiments exactly, my house loan EMI eats up more than 1/3rd of my salary rest by investments and then there is TDS

I can manage an EMI of around 10-11K but it the down payment towards the car thats stopping me. :(

[ikoneer]

My first selection criteria is that the cost of the car should be less than my annual salary.

Then comes the current outstanding loans and what can be afforded

[p'arth]

The rule that I believe in is:

The OTR cost of the car should be <= Annual Take Home Salary

Example: If my take annual take home after all deductions is 5 lacs then I can afford the middle variants of most hatches.

[v-drive]

Aseem,

Its a very difficult generalization if there is one. The "what car" depends on where in your priority list driving a car figures. For many of us on this forum, automobiles is a passion and hence we would like to know about various options, debate about them, and advise about them, but when it comes to our own set of wheels, we all have to look at things in front of us, and smell the grass.
The exceptions which you have highlighted, i am afraid, I have seen them to be more common. I have seen people with 2 years of experience driving much better cars and lots of managers driving older and smaller cars than their team members.
At the cost of sounding regional, and having lived in Delhi and now in Bangalore, its also a regional specific phenomenon.
I think in a nut shell, what I am trying to say is, that even if your salary is 30 Lac a year, and a car for you is just a point A to B thing, then you will not bother, where as if your salary is 5 Lac, and you like to tell the world that you have arrived, then you will take a loan and go buy an i20, or a Indigo CS. :-)

[durgesh]

gross salary is not relevant. i am of the view that not more than 30% of the income after tax, 80C investments and current EMIs should go in car EMI.

[hiren.mistry]

Originally Posted by ikoneer

My first selection criteria is that the cost of the car should be less than my annual salary.

Then comes the current outstanding loans and what can be afforded

Originally Posted by p'arth

The rule that I believe in is:

The OTR cost of the car should be <= Annual Take Home Salary

Example: If my take annual take home after all deductions is 5 lacs then I can afford the middle variants of most hatches.

Excellent point! Thats what even I have been doing.

[StarVegabond]

Price of the car should be based on Affordability and not Salary
Affordability and Salary of a person are two different things

e.g. a 45-50 year old Owner Director of a company who might earn high salary, but his liabilities (towards family, Home, Parents healthcare, children's education, could be very high and hence his affordiability of a new car could be low.

in my view affordability is to be calculated based on

Gross Income
- statutory out goes
- tax deduction at source
- liabilities (EMIs, Education, Healthcare)
- future security outgoes (insurance, savings etc)
- cost of living (food, transportation, communication, entertainment, garments, relationship maintenance with extended family etc)

= net disposable surplus

the price of the car one can afford is based on net disposable surplus one has.

just buying a higher segment (=expensive) car w/o actually taking care of lower rung elements of hierarchy of needs is not good, often not sustainable in medium/long term.

[ph03n!x]

I think it makes sense more to figure out the "what car" part based on how much money actually remains on hand after all expenses. Here is an example for a monthly take-home salary of Rs. 50,000 PM:

Rent - 10,000
Bills - 2,500
Home-needs - 5,000
Investments / savings - 10,000
EMI - 5,000 (existing loans)
Misc expenses - 2,500

So the surplus per month would be 15,000 - off which, say, 2,500 need to be reserved for fuel - So my EMI should be approximately between 10,000 ~ 12,500.

Now how long am I willing to pay this EMI (considering future hikes, job changes, etc)? Lets assume 5 years. And lets also assume that I choose a petrol (highly unlikely for me personally, but then, we are assuming here!!) - So what should be my ideal budget?? At 12% interest, a 5-year loan for 5.5 lakhs will have an EMI of Rs. 12,113 (EMI Calculator | Calculate Car Loan EMI - CarWale.com).

Now lets say that the car requires a 10% down payment, implying 90% of the car's on-road value is 5.5 lakhs, and total value of the car on-road is Rs. 6,11,111.

A monthly take-home of 50k works out to an annual take-home of 6 Lakhs. But instead of saying "someone earning 6 Lakhs in take-home per year can buy a 6-lakh-car", it would be prudent to list out your earnings and expenditure like I have shown in the example, and work out the car's value you can afford.

Note: My logic may be flawed, and I might have made wrong assumptions here - the take away here is the idea, not the math

[aseem]

Guys its true that there are a lot of factors. But we keep thinking that if we earn X lakhs more we will buy that Y car or Z car. And than when we start earning X lakhs more, we just dine out more, drink more, travel more, splurge more, save more, and hunger to save money increases. Buy expensive mobile, and expensive watches, but the car EMI as such we hesitate before taking the plunge.
If we do take the plunge, than obviously our splurge, dining and entertainment expenditure would have to be checked. Therefore again the point I want to drive home is, given these salary brackets, given that, house etc and normal average person responsiblity, what kind of car can one consider as a sensible/smart buy. I dont want to be too miser nor too exhorbitant based on my pay grade!

[aargee]

Originally Posted by StarVegabond

the price of the car one can afford is based on net disposable surplus one has.

Wow, that's my say too; will buy things only if I've cash or someone gives loan with no interest. Otherwise a strict NO to even some of my needs. I'm happy to remain without getting what I want rather than having it with a loan. So I prefer to buy a car when I've all that money instead of borrowing & buying it now.

Originally Posted by aseem

But we keep thinking that if we earn X lakhs more we will buy that Y car or Z car. And than when we start earning X lakhs more, we just dine out more, drink more, travel more, splurge more, save more, and hunger to save money increases.

I did it simple; reduced the expenses, happy with the car I have & will dream bigger when I've the greens. No making castle in the air. Ah!!! it looks like we're talking about this in a different form here.

[sgiitk]

The old US rule was - I should be able to buy it in 6 months.

Everybody has his own financial commitments. Someon with kids settled, own house, no loans, etc. will be manage far more than what someone with one or more of these liabilities can.

I would say, if you can comfortably pay off in three years, you should be Ok.

[nandans2005]

Hey star,

I absolutely second your opinion on this.

I would like to add that one should also reduce the amount of EMi one has to pay for the loan taken for the car. I mean that one should try & make more of the down payment, if possible upto about 80% of the total cost of the car.

[JVH]

The only thing I would like to buy on loan is an appreciating asset. Land, property et al.

So, as Star and aargee have pointed out, Car buying will solely depend on how much cash I have in hand. Purely my perspective.