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Old 23rd April 2010, 14:07   #16
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My take is the Car EMI should not be more 15% of your net monthly income. Again things will change slightly if its a single member earner family or DINKs.

Atleast DINKs can splurge more money on cars because affordability/disposable income is higher.
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Old 23rd April 2010, 14:12   #17
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Originally Posted by sgiitk View Post
The old US rule was - I should be able to buy it in 6 months.
Sir, could you elaborate on this? Also what's the new rule ?

Originally Posted by sgiitk View Post
I would say, if you can comfortably pay off in three years, you should be Ok.
You mean, if someone can pay off a car loan comfortably in 3 years is good enough?
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Old 23rd April 2010, 14:14   #18
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Purely seaking of someone who cannot buy a car thru company lease scheme.

80% of your CTC goes to current commits like IT, living expenses (rent, sustenance, holidays), savings and loans repayments.

20% remaining is what I can call a disposable income, which is what you can afford for the EMI!

Assuming you take a 5 yr loan, knock off the interst which makes up one year's EMI, knock off another year for gas/maintenance so the max value of a car you can afford is 60% of your current CTC (3*20% of current CTC). Learnings from the recession, dont plan on your salary increase or job switch

Now, do the math for your table.
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Old 23rd April 2010, 14:14   #19
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The "rules" obviously change significantly depending on whether the car buying decision is for a first car (or a real need for a bigger car). Upgrades are a different matter.

For a first car, I wouldn't consider anything that I can't repay in more that 3 years.

But when it comes to upgrades, some people will just not do it even though they can afford a brand new depreciation disaster - others do it every year. Its hard to quantify how much one should spend on an upgrade as it depends on individual spending habits.
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Old 23rd April 2010, 14:15   #20
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Originally Posted by durgesh View Post
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.
I agree. I too think that your budget should be based on how much you save, rather than how much you earn. I have messed up my finances because I didn't think much.
My car is taken on lease from my employer (August 2008). My monthly lease amount for the car and the EMI I pay for my apartment take about 80% of my salary. I find it hard to manage my monthly expenses with the rest. I hoped the problem would be solved with my salary hike. But thanks to recession, there has been no hike for a long time now!!

But then I really didn't have a choice. I wanted a Fiat, and there was just one model with 3 engine options then :-(
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Old 23rd April 2010, 14:19   #21
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Default Complex equation!

WhatCar = f(CurrentSalary, CareerGrowthProspects, CurrentLiabilities, FutureLiabilities, PrioritiesInLife, PasssionForAutomobiles, MonthlyTravelProfile, WhatImageDoYouWantToProject, Familiy'sPreference, Lifestyle, etc etc)

Aseem, your question is addressing only the first variable of the equation :-)
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Old 23rd April 2010, 14:31   #22
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The stupid golden rule i take account if i have to buy a car is-
*What previous car i have and what would i get by selling it.
*The annual salary i have
*The money i save at the end of month
And then i can go ahead and decide the car.
For eg- if i get 3 lakhs by selling of the car,keep it on a seperate pot.
now supposedly my annual salary is 8 lakhs .
that makes me upto 11 lakhs.
and money i save at end of month is rs 10 thousand(This is the saving grace that will help me pay installments when i will be having tough month financial wise)
So here we go i can now afford a car upto 11 -12 lakhs.
Civic or may b cruze by adjusting a little bit.
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Old 23rd April 2010, 14:32   #23
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Buy a car that would not decrease your life span.
Neither by traveling in or by stressing you about the EMI to be paid.
Because in today's life there is not guarantee about job, salary etc.

Last edited by pb10gagan : 23rd April 2010 at 14:34.
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Old 23rd April 2010, 14:52   #24
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My rule has been this
If you have 80% of the money to buy a new one , buy that. If you have 100% of the money to buy a used one, buy it. NO LOANS.
This is just me, not a rule. That is why so far i bought used only, as better to own it fully than have a bank loan is what i am comfortable with.
Typically in bangalore if a couple earns say 100K in all, here are the expenses
Rent -10K(EMI of house 30K)
Food- 15K(incl occasional eat out)
Travel- 2K(more if folks from outstation)
Annual(insurance, medical, investments etc)- 10K
Purchases etc- 10K(clothes, accessories, home utils etc)
So that means if no house EMI, they are left with 45K, of which easily 10K can be allocated to car EMI and about 5K a month at the most for fuel and maintenance.
If House EMI, then maybe only 30-35K left and again car is possible.
Ideally one should be able to save 10% of income even after paying EMI's is what i suggest and would have followed if i took this route.
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Old 23rd April 2010, 15:04   #25
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One of my friends who is a Finance whiz told me this.

Car Cost = 50% of your annual salary.
Home Purchase should be = 3 times your annual salary.

The Car EMI should be capped at about 10% of your monthly carry home cash component.

Car loan tenure (ideal and sensible) is 3 years. because the car comes to a break even value at this time in terms of what one has paid up on downpayment and interest on the loan at that point, when compared with the residual value of the car at that point.

The Home EMI should be capped at about 30% of your monthly carry home cash component.

+/- 5-7% variance will be manageable.

This way, one will have sufficient left over to run the show, pay the bills, save for the future and splurge a bit.

In a double income family, of course, things will be a bit easier all round, with enough money left over for holidays and other desirables.

When all is said and done, a car is a depreciating item of machinery and a home is a long term investment and makes even more sense to own / buy now if one has kids to inherit it.

But the trouble is that with today's slant on consumerism, people really stretch way beyond the affordability levels by taking into account their future prospects - shades of "Great Expectations" - however, the future unfortunately is always a bit uncertain and hence cannot be taken for granted. Therefore, better to cut the coat according to the cloth available.

Last edited by shankar.balan : 23rd April 2010 at 15:09.
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Old 23rd April 2010, 15:08   #26
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These are some of my thumb rule. Total EMIs should not exceed 30% of monthly net income. Car EMI could be 5%-10% of monthly net income. Car loan tenure should not exceed 4 years. 3 years is preferable. Cost of car should be less than half of current gross salary.
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Old 23rd April 2010, 15:17   #27
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Originally Posted by sgiitk View Post
The old US rule was - I should be able to buy it in 6 months.
I dont think same rules can be applied here. Salary/Car price/options available in US and India are entirely different.

Originally Posted by JVH View Post
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.
+1 to that, this is what I tell my friends and colleagues.

Last edited by Latheesh : 23rd April 2010 at 15:34.
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Old 23rd April 2010, 15:29   #28
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I follow and advice a very simple rule (this is of course for salaried folks, assuming that you have 1-1.5 L available for down payment):

1. Take your monthly take home salary
2. Deduct your exisiting EMI, montly expenses, entertainment etc...
3. Now 1/3rd or less of your remaining salary can be used as your EMI of your car on a 3 year loan.
4. Search for a car which fits in this budget.

Why I advice this model:

1. God forbid, but emergencies can come at any time.
2. You need cash in the month of Feb-March to invest to take tax benefit.
3. You need to buy gifts for occassions like marriages, b'day's, anniversaries etc.


Last edited by pk_del : 23rd April 2010 at 15:33.
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Old 23rd April 2010, 15:34   #29
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If people decide cars from salary slabs they earn then pretty much everyone will be able to make out what one earns by his car. Just kidding. I own a Lancer and a Zen. But both my Salary does not fall in the 15-20 L bracket.
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Old 23rd April 2010, 15:44   #30
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Generally they say that the total monthly outgo on EMI on all loans included should not exceed 30% of monthly income. So it is prudent to budget the car within this amount and allocate the EMI amount based on the importance we give to owning the car amongst all other big ticket purchases like home and durables

What JVH has said is of course the ideal situation - like explained in the book 'Rich Dad, Poor Dad'. But most of us, salaried people are not in a position to follow this
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